A STOCK PROPOSITION

Lebanon 2015 | FINANCE | VIP INTERVIEW

TBY talks to Dr. Ghaleb Mahmassani, Vice-President of the Beirut Stock Exchange (BSE), on market activity and the challenges ahead.

What is your assessment of the stock market's activity in 2014?

The year 2014 witnessed a general increase in the trading movement on the BSE. In the year's 245 trading sessions 96.8 million shares were traded for $661.4 million, compared to 51.4 million shares valued at $375.2 million for the year 2013. This represents an increase of 88% and 76%, respectively, on the volume and value of shares traded. Total listed capitalization increased by 6.4% at the end of the year to reach $11.2 billion against $10.5 billion at the end of 2013. Finally, the value of secondary public offering in 2014 increased by more than 35% to reach $521 million against $385 million in 2013.

In March 2014, the BSE signed an agreement with Euronext for the implementation of a new trading application platform. What is the importance of this new system and how does it contribute to enhancing the credibility of the local financial market?

From a technical perspective, the BSE has always been well structured and our technical infrastructure is being constantly up-dated to match the highest international standards. Currently, the BSE is using the NSC-UNIX trading system, which is developed and used by Euronext. In addition, we adopted an online trading system and developed an up to date website to provide our investors an easy use search engine for market data and listed companies' information. Recently, we signed an agreement with EURONEXT to set up an advanced, state-of-the-art, electronic trading system in the coming two years that will improve the technical performance of the market and support the expected growth in equity listing and the entry into new asset classes in the Lebanese markets.

“From a technical perspective, the BSE has always been well structured."

What steps are being taken to promote the financial markets in Lebanon and attract more institutional investors to the BSE?

In an effort to foster the development of the financial markets in Lebanon, the Lebanese Parliament endorsed law #161/2011 in August 2011; I participated in different panel discussions of the law in the parliament, and suggested many amendments to it. The law has been drafted according to recognized international standards, and aims to develop sound and transparent financial markets in Lebanon. It is expected to boost the activity of the Lebanese financial markets, increase its transparency, its liquidity, as well as its efficiency. The new law governs all operations related to the issuing, purchase, sale, or promotion of financial instruments that are directly offered to public subscription and that are listed or traded on the stock exchanges. The market authority will be entrusted to issue rules in relation to the operation of financial markets, to regulate the IPO process and the listing of financial products, as well as to look into ownership issues where listed companies are involved. Moreover, it has power to award licenses and authorizations, particularly to financial rating agencies, collective investment schemes, financial intermediation companies, stock exchanges, and companies that offer consultancy and other services relating to financial products to the general public. It monitors financial markets, conducts investigations, issues sanctions, and prompts criminal proceedings where necessary. It also identifies the publications, disclosures, and information to be provided by the listed companies to the investors. In addition, the new law provides for the establishment of the Financial Market Court to which the Chairman and members must devote their time. Finally, the new Financial Market Law takes into consideration the privatization of the BSE by turning it into a Lebanese joint stock company in the first stage, to be established in Beirut and dominated “Beirut Stock Exchange SAL," and in a later stage assigning its shares to third parties from the private sector, through a public or private offering, pursuant to a decision of the Council of Ministers.

Most Lebanese businesses, industries, and services are family owned. How does the BSE work to educate entrepreneurs on the importance of disclosing their activities and raising capital through the stock exchange?

Lebanese businesses, both in the commercial and service sectors, are, in the vast majority, small family-owned firms that prefer to finance their activities through bank credit in order to keep control over their companies. However, the BSE Committee is trying to correct the current situation by giving increasing attention to educational and promotional programs that aim to attract and convince medium-sized Lebanese companies to list their shares on the BSE and to increase their capital through the broadening of the shareholder base, by highlighting the importance and advantages of financing through the stock exchange.

What other challenges are facing Lebanon's capital markets?

The Lebanese market is struggling with high political insecurity caused by the war in Syria, and the failure to elect a new president. As long as these issues are not resolved, Lebanon's service and touristic oriented economy will grow weakly. In fact, these issues resulted in significantly decreasing foreign direct investments and tourism, declining economic growth during the past three years to the 1-2% range after successive years of 8% average growth. These problems have deterred foreigner investors from entering the market for the first time and already existing investors from increasing their portfolio. However, even in the normal period, stock market activity is hindered by competition with banks and the lack of market culture in Lebanon.

What is your mid-term outlook for the BSE?

We are highly confident that the creation of the new financial market authority will give national and foreign investors a clear message that Lebanon has now the proper legislation to control and regulate its financial market. We are sure that the law enforcement will progressively contribute to the development of a successful domestic and regional exchange and render the BSE one of the most important regional exchanges for issuers to raise capital on and for investors to trade a diversified range of financial instruments.

© The Business Year - May 2015