BANQUE D'AFFAIRES DU LIBAN ET D'OUTRE-MER SAL

“The Lebanon Brief” can be accessed via Internet at the following web address: http://www.blom.com.lb

Monday 2 November – Saturday 7 November, 1998

Issue No 126

BANQUE D'AFFAIRES

DU LIBAN ET D'OUTRE-MER SAL

Rachid Karameh Street – Verdun P.O.Box: 11-1912, Beirut BLOM Bldg. - 2nd Floor

Tel: 961 1 743 300, 738 938 Fax: 961 1 738 916

Economic Research Department

This report is printed for the purpose of informing only. The information herein has been compiled from, or based upon sources we

believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not

be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The

consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

The Lebanon Brief

2 November – 7 November, 1998

Banque d’Affaires du Liban et d’Outre-Mer s.a.l. 1

MARKET HIGHLIGHTS

Stock Market 6/11/98 30/10/98 % Change

BLOM Stock Index (BSI)† 895.69 901.19 (0.61)

Total Volume Traded 515,668 869,449 (40.69%)

Total Value Traded (USD) $2,821,823 $4,344,351 (35.05%) †22 January 1996 = 1000

Foreign Exchange Market 6/11/98 30/10/98 % Change

Lebanese Pound / Dollar 1,508.50 1,508.50 0.00%

Deutsche Mark / Dollar 1.672 1.653 1.15%

Yen / Dollar 119.110 116.095 2.60%

French Franc / Dollar 5.610 5.544 1.19%

Swiss Franc / Dollar 1.378 1.351 2.00%

Dollar / Sterling 1.660 1.675 0.90%

Money Market Rates 6/11/98 30/10/98 b.p. Change

Interbank Average‡ 7.76% 7.75% 1

BDL 45-day CD 1050% 10.50% 0

BDL 60-day CD 11.25% 11.25% 0

3-M TB yield 12.25% 12.38% -13

6-M TB yield 13.50% 13.52% -2

12-M TB yield 15.08% 15.20% -12

24-M TB yield 16.08% 16.08% 0 ‡day-to-day rate

U.S. Dollar Market Rates 6/11/98 30/10/98 b.p. Change

BDL 1-M Deposit* 5.66% 5.59% 7

BDL 3-M Deposit* 5.75% 5.59% 16

LIBOR 1-M 5.29% 5.22% 7

LIBOR 6-M 5.18% 4.98% 20

2000 Govt. Eurobond Yield 6.54% 6.72% -18

2005 Govt. Eurobond Yield 8.54% 8.54% 0

2007 Govt. Eurobond Yield 8.62% 8.62% 0 *for deposits of $5m-$10m

Money Supply (LPbn) 22/10/98 15/10/98 % Change

Currency-in-circulation 1,195 1,238 (3.47%)

LP Deposits 14,808 14,608 1.37%

FC Deposits 22,931 23,257 (1.40%)

FC Deposits ($m) $15,201 $15,417 (1.40%)

TBs held by the Public 5,320 5,300 0.37%

M4 44,254 44,403 (0.33%)

M4 ($m) $29,336 $29,435 (0.33%)

The Lebanon Brief

BLOM STOCK INDEX

January 1st, 1998 - To Date

Yr Hi 1,115.45

Yr Lo 890.02

Lebanese equities followed their now well-rehearsed subdued pattern

of trading, as the BLOM Stock Index fell near its all-time low of

890.02, which it actually reached last week. The lack of any single

exceptional trade, on the scale witnessed last week with RYMCO,

inevitably meant a significant drop in volume on the bourse, which

fell 40.7% to 515,668. With little incentive to venture into the market

at present, investors appear content either to stay on the sidelines or

take advantage of the renewed confidence in LP-assets and buy

Treasury Bills instead. This is quite apart from those investors who

understandably find greater appeal in international markets, where

opportunities for quick returns can always be found.

Beirut Stock Exchange Closing Prices

6/11/98 30/10/98 %

Change

Solidere A $10.500 $10.625 (1.17%)

Solidere B $11.000 $11.000 0.00%

Ciments Libanais $0.719 $0.750 (4.13%)

Ciments Blancs (B) $1.688 $1.625 3.88%

Ciments Blancs (N) $1.750 $1.750 0.00%

Eternit $0.688 $0.688 0.00%

Uniceramic (A) $1.625 $1.625 0.00%

Uniceramic (C) $1.844 $1.813 1.70%

BLC (C) $17.500 $17.750 (1.40%)

Audi (C) $28.875 $28.875 0.00%

BoB (C) $7.188 $7.125 0.88%

RYMCO $3.250 $3.250 0.00%

Byblos (C) $3.000 $2.938 2.11%

Lebanon Holdings $7.125 $7.063 0.88%

Solidere saw its volume drop 37%, to 68,427, as “A” shares remained

under relatively heavy supply pressure of 300,000 to 400,000 daily.

Class “A” fell back to its old plateau of $10.5, while “B” shares

stayed steady throughout the week. The pattern of trading has

changed little over recent months and the coming weeks is unlikely to

be any different.

Bank of Beirut (BoB) was the leading light among the banks, rising at

the end of the week to $7.188 from $7.125 on the back of strong

demand, between 150,000 and 200,000 at each session., which

pushed volume up to 128,600 from 20,765. Byblos managed to

regain lost ground and crept back up to $3 on Friday on modest

turnover of 34,000, mostly coming at the close. Audi remained

unmoved during the week, with volume slightly lower at 26,010.

Banque Libanaise pour le Commerce (BLC) slipped back $0.25 to

$17.5, with only 40 shares being traded.

movements witnessed by G

FINANCIAL MARKETS

EQUITY MARKET

Beirut Stock Exchange

The Lebanon Brief

Global Depositary Receipts

Over-the-Counter Market

FOREIGN EXCHANGE

MARKET

MONEY MARKET

Ciments Libanais witnessed a surge in volume to 216,027, in stark

contrast to previous weeks’ low levels, mainly accounted for by one

day’s turnover of 202,000 on Wednesday. The price fell to an all-time

low for SCL since listing of $0.688 before edging back up to $0.719.

Uniceramic “C” rose to $1.844, as volume increased by 2,350 to

19,350. Eternit was unchanged on volume of 4,750, while Ciments

Blancs “B” went up to $1.688 over the week, having reached a high

of $1.75 on Monday.

Lebanon Holdings was the only other stock traded, with the price

appreciating to $7.125 on total trade of 16,350, down 800 on the

previous week.

Lebanese-Issued GDR Prices (at closing)

Issuer Mid-Price

6/11/98

Mid-Price

30/10/98

% Change

BLOM $30.200 $30.250 (0.17%)

Solidere $10.825 $10.750 0.70%

Audi $27.375 $27.100 1.01%

BLC $17.000 $17.250 (1.45%)

Lebanese GDRs were on the whole quite stable during this week, with

only Audi showing any real signs of life, trading at a mid-price of

between $27 and $27.5 before settling at $27.375. BLC fell back

slightly, as its trading band retreated further from levels witnessed in

October of above $18. BLOM and Solidere remained within tight

ranges throughout the week, going through a consolidatory phase.

OTC Stock Prices

Stock Mid-Price

6/11/98

Mid-Price

30/10/98

% Change

Byblos “A” $1.938 $2.125 (8.80%)

Byblos “B” $2.063 $2.375 (13.14%)

Fransabank “A” $9.625 $9.500 1.32%

Fransabank “B” $10.750 $10.250 4.88%

Casino du Liban $185.000 $185.000 0.00%

Sibline $2.000 $2.000 0.00%

SGHL $4.625 $4.950 (6.57%)

The Central Bank intervened for the third consecutive week in the

foreign exchange market to buy U.S. dollars as demand for the

Lebanese pound remained high. Though the extent of the intervention

is not clear, it is generally perceived to have been less than last week’s

$50m-$60m. Investors have been selling dollars to buy LP Treasury

Bills, locking-in current rate levels before they fall further. The BDL

intervention band was unchanged from last week’s LP1,502-1,515,

while interbank trade ranged between LP1,502-1,502.10 against

LP1,502-1,502.25 in the previous week.

Treasury Bills Auction (LPm)

29/10/98 22/10/98 % Change

Nominal Subscription 623,281 647,270 (3.71%)

Nominal Surplus/Deficit* 121,342 334,134 (63.68%)

* subscription of TBs against maturing TBs

Nominal TB subscriptions remained high on October 29th

, if a little

lower than the previous week, as confidence in LP-denominated assets

continued to be buoyant. However, the pattern of subscriptions was

markedly different, with the share of 24-M TBs falling significantly

from 92.2% to 38.2%.

The Lebanon Brief

Economicnn

Investors took the opportunity to rebalance the life of their portfolios,

following several weeks of heavy purchases of the 24-TB, ahead of the

allocation system being replaced by an auction. In addition, investors

locked in higher yields available on TBs bought on the secondary market

before it ceased operation on November 4th

. The remaining share of

subscriptions was divided as follows: 12-M (25.7%), 6-M (28.1%), and

3-M (7.9%).

The current confidence in LP assets enabled the Central Bank to again

lower the yield on the 3-M and 6-M TBs on November 5th

, by 13 b.p.

and 2 b.p. respectively, and also to decrease that on the 12-M TB for the

first time since March 1997, by 12 b.p. to 15.08%. A further reflection of

confidence was apparent in the surge in Central Bank CD sales this

week, offering investors quicker returns as rate differentials with the

shortest-term TBs narrow.

BDL Certificates of Deposit Sale (LPbn)

CD Type 6/10/98 30/10/98 % Change

45-day 38 3 1,166.67%

60-day 86 16 437.5%

Total 124 19 552.63%

Lebanese-Issued Eurobond Prices Issuer Maturity-

Coupon

6/11/98 30/10/98 %

Change

Credit Libanais 1999-9.000% 102.000 102.000 0.00%

Byblos Bank 1999-9.250% 102.130 102.130 0.00%

Mediterranee 1999-8.625% 101.650 101.650 0.00%

BoB 2000-8.875% 102.000 101.750 0.24%

Treasury 2000-9.125% 104.000 103.750 0.24%

Audi 2001-9.375% 103.380 103.630 (0.24%)

Treasury 2001-8.125% 102.000 101.250 (0.74%)

Mediterranee 2002-9.250% 103.000 102.630 0.36%

Libano-Francaise 2002-8.875% 103.000 103.250 (0.24%)

Byblos Bank 2002-8.750% 101.500 101.440 0.06%

Fransabank 2002-8.000% 100130 100.130 0.00%

Treasury 2003-8.625% 102.000 101.440 0.55%

Ciments Libanais 2003-9.000% 101.000 101.000 0.00%

Méditerranée 2003-8.625% 100.190 100.250 (0.06%)

Treasury 2005-8.750% 101.000 101.000 0.00%

BLOM 2005-9.000% 102.625 102.625 0.00%

Treasury 2007-8.625% 100.000 100.000 0.00%

Audi 2007-8.500% 100.380 100.380 0.00%

Lack of liquidity was again the main characteristic of trading in Lebanese

eurobonds. U.S. Treasuries headed down this week on a combination of

factors. A very poor 10-year note auction followed on from Democratic

gains in congressional elections. The effect of subdued jobs growth, of

116,000 in October, was negated by comments from the Fed chairman

that yield spreads and liquidity premiums should soon normalise. Adding

to the down-pressure on Treasuries was a reversal of recent flight-to-

safety bids, given greater stability outside the U.S.

Yield Curve: Gov't Eurobonds vs U.S

Treasuries

3Y 5Y 7Y 10Y

UST Eurobonds

EUROBOND MARKET

The Lebanon Brief

ECONOMIC

STATISTICS

BoP deficit in September

FX reserves up $158.7m in

October

Net public debt up1.84% in

September

According to the latest BDL statistics, Lebanon registered a balance of

payments (BoP) deficit in September 1998 of $274.1m. In the first nine

months of the year, the balance of payments registered a $147.9m

deficit, compared to a $842.1m surplus in the same period of 1997.

$42.00$12.60

($274.10)

($300)

($225)

($150)

Sep' 97 Aug' 98 Sep' 98

Balance of Payments

The BDL’s bi-weekly balance sheet revealed that its gross foreign

exchange reserves continued to increase in the second half of October,

by $158.7m to $6.59bn, as the BDL interevened in the foreign

exchange market to buy dollars to prevent an over-appreciation of the

Lebanese pound. On a year-to-year basis, the BDL’s gross foreign

exchange reserves increased 6.7% from $6.17bn.

$6,173

$6,389$6,589

$5,750

$6,000

$6,250

$6,500

$6,750

Oct 30, 1997 Sep 30, 1998 Oct 30, 1998

Gross FX Reserves

Lebanon’s net total public debt rose 1.84% in September, to $16.40bn.

Net domestic debt decreased by 0.97%, to $12.40bn, while external

debt increased to $3.99bn from $3.57bn in August. On a year-to-year

basis, the net domestic debt increased 16.06% from $10.69bn in

September 1997, while external debt went up 78.09% from $2.24bn.

$12,931

$16,101 $16,398

$10,000

$12,000

$14,000

$16,000

Sep' 97 Aug' 98 Sep' 98

Net Total Public Debt

The Lebanon Brief

Coincident indicator down

0.5% in September

Customs duties up 26.2%

in October

Real estate fees revenue

falls in September

The BDL’s broad measure of economic activity in Lebanon, the

coincident indicator (an average of 12 weighted economic indicators),

decreased 0.53% in September 1998, to 186.20, from the month before.

On a year-to-year basis, the indicator increased 6.15% from 175.4.

175.40

187.20186.20

Sep'97 Aug '98 Sep '98

Coincident Indicator

Revenue from customs duties, the government’s major source of income,

increased by 26.21% in October from September, to $139.48m. On a

year-to-year basis, revenue from customs duties increased by 24.24%

from $112.264m. In the first ten months of 1998, revenue from customs

duties amounted to $1,118.30m, against $795.81m in the same period of

$112.26 $110.51

$139.48

Oct' 97 Sep' 98 Oct' 98

Customs Duties Revenue

Real estate fees revenue decreased 2.8% in September from the month

before, to $17.37m, while rising 9.9% on a year-to-year basis. For the

first nine months of 1998, real estate fees revenue totalled $134.64m,

against $118.23 in the same period of 1997.

$15.80$17.87 $17.37

Sep' 97 Aug' 98 Sep' 98

Real Estate Fees Revenue

The Lebanon Brief

WEEKLY

DEVELOPMENTS

EIU predicts budget deficit

overrun

Lower deficit to GDP

expected by end of year

BDL circular on letters of

credit

Lebanon and Syria sign on

customs

Finance Ministry signs

deal for computerisation

In a report to be published next week, the Economist Intelligence Unit

(EIU) forecasts that the government will overrun its 42% budget deficit

target this year by around 5 percentage points. According to the EIU,

the budget deficit will be 47% by the end of this year, representing

15% of GDP rather than the government’s estimated 12%. The EIU

considers that the government will come under pressure to increase

spending in the last three months of this year, when expenditure usually

increases significantly. Thus, the government’s budgeted $5.28bn in

spending would be exceeded, as the EIU believes that payments have

been delayed and cannot be put off any longer. The EIU’s report cites

the Electricité du Liban (EDL) as with-holding payments from

contractors which have to be settled before year-end. However, the

Finance Ministry claimed that the EDL was operating within its budget.

At a conference of Arab Bankers held in Beirut, Central Bank

Governor Riad Salameh stated that the budget deficit compared to

GDP should fall from 22% in 1997 to 12% by the end of this year. At

the same time, Minister of Finance Fouad Siniora added that the

government will introduce new revenue measures to reduce the budget

deficit. The minister added that tax collection in Lebanon had

improved by 35% since the government reduced income tax rates.

The BDL issued a circular requiring banks to implement a 15% margin

when issuing letters of credit for importers. Such an amount would

show on the liabilities side of the balance sheet under a sub-account to

be called “Margins on LC openings”. Additionally, the margin on a

revolving credit is to be calculated on the basis of the total value of the

L/C. However, operations involving back-to-back L/Cs will be

exempted from requiring a margin on condition that the destination is

outside Lebanon.

Lebanon and Syria finalised an agreement concerning the reduction of

customs duties between the two countries by 25%, starting at the

beginning of 1999. The 25% cutback on locally-made products will be

lifted gradually in the coming four years. At present, Syria prohibits

certain Lebanese imports: alcoholic beverages, soft drinks, exotic fruit

juices, tiles, ceramics, porcelain and tobacco.

The Ministry of Finance signed a contract with ELIS, a Dutch

company, to computerise survey plans and maps for Lebanon. The

project, the second phase of modernising the land registry, financed by

the International Monetary fund (IMF), has a total cost of $8.8m and is

to be completed in four years. Once completed, the new system will

facilitate far quicker access for the public to the Ministry’s archive of

survey maps and plans, and improve administrative work.

The Lebanon Brief

CORPORATE NEWS

BLOM introduces

improved housing loan

programme

RYMCO’s profits in first

nine months of 1998.

Byblos issues $50m CDs in

private placement

Thomson Bankwatch rates

Byblos

Bou Khalil posts $1.3m

profits up to September

TMA and CargoLux sign

agreement.

Banque du Liban et d’Outre-Mer S.A.L. (BLOM) has introduced a

revamped housing loan programme. The loan is for a term of 7-10

years and carries interest of 9% p.a. for the first year and LIBOR plus

5.5% with a minimum of 9% for the remainder of the period. The

maximum amount that can be borrowed has been increased from

$80,000 to $250,000, with a minimum of $15,000. Additionally, the

loan may now be used to buy or renovate a home, whereas previously it

could only be employed for house purchases. Borrowers now would

only have to wait 48 hours for a reply from the time of submitting their

application. A down payment of 30% is required, as is life and home

insurance. Collateral is in the form of a first mortgage on the property

and the borrower’s salary should be domiciled at the bank. A borrower

is eligible if he earns 3 times the scheduled monthly payment on the

basis of 9% interest for 10 years. Only interest is payable in the first

year, with repayment of the principal starting in the second year.

Rasamny Younis Motor Company S.A.L. (RYMCO) announced that its

net profits rose by 29% to LP14.5bn ($9.6m) in the first nine months of

1998 compared to LP11.24bn in the same period of 1997. The

company, listed on the Beirut Stock Exchange, stated that its turnover

increased by 33% to LP100.90bn ($66.8m) compared to LP75.9bn in

the same period of last year.

Byblos Bank S.A.L., the third largest bank in Lebanon in terms of

assets, issued $50m worth of 2-year certificates of deposit in a private

placement with Lebanese expatriates and Arab institutions and

individuals. Proceeds from the placement will be used to support the

bank’s short-term loans and retail lending. The CDs carry a 6.75%

yield payable every six months.

In a separate development, Byblos Bank was assigned a sub-investment

grade B+ senior debt rating by bank rating agency Thomson

Bankwatch. Thomson stated that the B+ rating reflects the bank’s

satisfactory profitability, high liquidity and strict provisioning. Earlier

this year, Thomson awarded Byblos an intra-country issuer rating of

A/B, its second highest, in addition to an LC-1 short-etrm loacl

currency rating. The intra-country issuer rating excluded factors

associated with sovereign risk and focused on the bank’s financial

strength, management and strategy.

Bou Khalil, the supermarket chain, revealed net profits of $1.28m for

the first 9 months of the year on sales of $21.8m. In 1997, the company

made $1.04m. The company is preparing to list on the Beirut Stock

Exchange (BSE), for which a general assembly is to be held on

Monday November 9th

to discuss removal of a 5% limit on share

purchases and that 33% of the stock would remain in Lebanese hands

in order to comply with BSE requirements.

Trans Mediterranean Airways (TMA), the Lebanese cargo carrier,

signed a cooperation agreement with CargoLux, Europe’s largest cargo

airline. The agreement allows TMA to benefit from the Luxembourgish

company’s facilities in Europe, while on the other hand, CargoLux will

gain handling services in Beirut.

The Lebanon Brief

Saudi Hollandi Bank opens

in Beirut

KIA sells 55% of the

company in Lebanon.

Saudi Hollandi Bank (SHB), a leading commercial bank in Saudi

Arabia, opened a representative office in the Gefinor Centre in

Beirut. The bank has assets of $4.9bn and had net profits for the first

nine months of 1998 of $52m. Saudi-Hollandi is 40%-owned by

ABN-AMRO (Netherlands) and the remaining 60% by Saudi

shareholders.

The agent of KIA motors in Lebanon, National Automative Trading

Company (NATCO), sold 55% of the company to the Dagher-Hayek

group. The deal was concluded by Sofidel SAL Holding, owned by

the Dagher-Hayek group, the sole agent for French Peugeot and

Citroen cars in Lebanon.

The Lebanon Brief

The Nikkei 225 index, underlying the 2-year index-linked Euro-

medium term note launched on 6 September, 1996 by Banque

Banorient (Suisse) S.A. (part of the Beirut-based Banque du Liban et

d’Outre-Mer Group), increased 2.48% this week. Since the $30m

note (with capital 100% guaranteed by Société Générale) was

launched, the underlying index has depreciated by 15.44%.

The Nikkei 225 ended the week higher, supported by hopes for

possible government measures to lift the economy expected on

February 20. These hopes prompted investors to hunt for low-priced

domestic issues. The market was also boosted by a rising yen, as

investors bargain-hunted large-capitalised shares, such as the steel

sector. Banks rebounded, supported by speculation that an increasing

number of banks may use public funds to boost their capital base.

Index Performance of Index-Linked Euro-Medium Term Notes

Underlying

Maturity-

Coupon†

Index at

6/2/98

% Weekly

Change

% Change

over Base

NIKKEI 225 1998-104.5% 17,040.06 2.48% (15.44%)

†the coupon equals the percentage of the increase in the value of the underlying

index that the note holder will receive at maturity

BLOM IN FOCUS

Index-Linked Notes

BANQUE D'AFFAIRES DU LIBAN ET D'OUTRE-MER SAL

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