PRIVATE BOURSE FOR THE PRIVATE SECTOR

Lebanon 2018 | FINANCE | FOCUS: STOCK EXCHANGE PRIVATIZATION

Stuck in a rut, the Beirut Stock Exchange (BSE) privatization makes headway amidst brief periods of political stability.

The privatization of Lebanon's stock exchange, BSE, has been a long time coming, as business leaders and government officials have been promoting—for years—the advantages of a private bourse for stock exchange development. Finally, progress in this regard has come via governmental decree, outlining the mandates, parameters, and structure of the new BSE SAL joint stock company to take over the country's capital markets.

Overall, 2017 was not a stellar year for BSE. According to Ghaleb Mahmassani, Vice-President of BSE, “87 million shares were traded for a value of USD762.1 million, compared to 120.5 million shares valued at USD971.6 million in 2016. This represents a decrease of 27.8% and 21.6%, respectively, on the volume and value of shares traded.” Stock market capitalization also decreased 3.7% YoY. But, Mahmassani is optimistic about improvement in 2018, most notably due to progress made to privatize BSE.

A 2014 OECD report on privatization and demutualization of stock exchanges in the MENA region noted that BSE was among the four stock exchanges in the region, along with Damascus Securities Exchange (DSE), Kuwait Stock Exchange (KSE), and Egyptian Exchange (EGX), which are fully public institutions with no corporate form. Several exchanges throughout the region are state-owned corporate structures. The OECD report emphasizes that BSE, KSE, and EGX toyed with the idea of privatization, highlighting the developmentally restrictive nature of wholly public exchanges.

In May 2017, Lebanon's Capital Markets Authority (CMA) called on the government to give investors and businesses more incentives to list on BSE, specifically asking for a clear policy and regulation. Lebanon's domestic instability and well-established banking sector kept capital markets from developing because investors had trust and experienced gains with banks, making financial incentives a necessary component for the development of capital markets. Indeed, other experts at the Euromoney Conference in May, including the Managing Director of the European Bank for Reconstruction and Development, underscored the importance of a private bourse for development. And for successful privatization, the stock exchange and CMA must collaborate effectively in addition to expanding the investor base beyond financial institutions. As of May 2017, eight of the 11 investors were banks and financial institutions.

In its 2017 Performance Review, Blominvest Bank argues privatization will enhance the exchange because more private sector players will be motivated to list their securities, and in turn, attract more investors to the Lebanese stock market. Regarding listed companies, research from the CMA suggests that upward of 40 companies are interested in listing on the stock exchange once it begins privatization. This would be a 142% increase on the bourse's 28 currently listed companies.

In September 2017, the Council of Ministers helped move Lebanon further in this direction. By decree, ministers established BSE SAL. The joint stock company will start out as a state-owned corporate structure before transitioning to become fully privatized. Initial capitalization of the company starts at LBP100 million (USD66,000) divided into 100,000 shares of LBP1,000. Vice-President Mahmassani told TBY that the first BSE SAL Board of Directors will include seven members: two from the existing board, three CMA Executive Board members, and two members of the Ministry of Finance. This first board will handle the transition to the for-now public corporation as well as develop and submit a plan and regulations for full privatization.

Still yet to be established or addressed with regulations is special market for SMEs—a majority of Lebanese companies. Often, strict requirements to list on the primary exchange keep many companies from listing. Mahmassani envisions a special market for SMEs with lighter requirements parallel to the official market.