THE LEBANON BRIEF -...

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THE LEBANON BRIEF

ISSUE 758 Week of 06 – 11 February, 2011

ECONOMIC RESEARCH DEPARTMENT Rashid Karame Street, Verdun Area P.O.Box 11-1540 Beirut, Lebanon T (01) 991784/7 F (+961) 1 991732 [email protected]

www.blom.com.lb

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The Lebanon Brief Table Of Contents of 14

ISSUE 758; Week of 06 – 11 February, 2011

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TABLE OF CONTENTS

FINANCIAL MARKETS 3 Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Markets 5

Eurobond Market 6

ECONOMIC STATISTICS & INDICATORS 7 Commercial Banks Total Assets Reach $140.58B in 2011 7

Lebanon’s 2011 Balance of Payments Registers First Deficit in 10 years 7

Value of Cleared Checks Reach $5.9B in January 8

ECONOMIC AND FINANCIAL NEWS 9 Kafalat Loan Guarantees Slide by 33% in January 2012 9

Consumer Confidence in Lebanon Fell y-o-y in January 9

CORPORATE DEVELOPMENTS 10 International Finance Corporation Invests $124 Million in Medgulf 10

FOCUS IN BRIEF 11 The Cost of Public Debt: Lebanon Compares Well with European countries 11

This report is published for information purposes 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 Financial Markets of 14


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FINANCIAL MARKETS Equity Market Stock Market

10/02/12 3/02/12 % Change BLOM Stock Index* 1180.67 1166.91 1.18% Avg Traded Volume 206,223 260,362 -20.79% Avg Traded Value 1,693,866 2,178,412 -22.24%

*22 January 1996 = 1000

Banking stocks continued to lead the gains in the Lebanese stock market after showing a resilient financial performance despite the unstable political and economic conditions in the region. The BLOM Stock Index (BSI), Lebanon’s leading index, snapped a 7-week losing streak, advancing by a weekly 1.18% to settle at 1,181 points, its highest close since December 28. Hence, the BSI expanded its year-to-date performance to 0.33%. The average daily traded volume reached 206,223 shares valued at $1.7M compared to 260,362 shares worth $2.18M recorded last week. With respect to the market capitalization, it increased by a weekly $106.98M to $9.18B. Compared to its regional peers, the Lebanese equity benchmark unperformed the S&P AFE40 that advanced by 1.44% to 56 points. Moreover, the BSI increased at a slower pace than the S&P Pan Arab Composite LargeMidCap Index that gained 1.48% to 111 points. Arab markets were led by Egypt bourse that jumped 3.69% on improving investor sentiment after the country's military rulers set presidential vote nominations for March 10 instead of the earlier planned mid-April. The BSI’s performance was also lower than the Morgan Stanley (MSCI) Emerging Index that rose 1.7% to 1,062 points, helped by news that Greece's political leaders struck a deal on a package of austerity measures needed to secure international rescue funds. The financial sector dominated trading activity, accounting for around 53.57% of the turnover. The BLOM Lebanese Banking Index (BMBI Lebanon) increased by a weekly 1.8% to a 6-week high of 2,758 points. BLOM GDR added 0.93% to $7.61, while BLOM listed stock remained unchanged at $7.4. As for Audi bank, its GDR rallied 5% to $6.3, whereas its listed stock surged 6.09% to $6.1. Byblos common stock gained 0.63% to end the week at $1.59. In London, BLOM GDR rose 1.32% to $7.66, while Audi GDR rallied 6.53% to $6.3. In the real estate sector, heavyweight Solidere A declined 1.35% to $13.9, while Solidere B remained flat at $13.95. On the London Stock Exchange, Solidere GDR advanced 2.54% to $14.15.

Banking Sector

Mkt 10/02/12 3/02/12 % Change

BLOM (GDR) BSE $7.61 $7.54 0.93% BLOM Listed BSE $7.40 $7.40 0.00% BLOM (GDR) LSE $7.66 $7.56 1.32% Audi (GDR) BSE $6.30 $6.00 5.00% Audi Listed BSE $6.10 $5.75 6.09% Audi (GDR) LSE $6.30 $5.91 6.53% Byblos (C) BSE $1.59 $1.58 0.63% Byblos (GDR) LSE $80.00 $80.00 0.00% Bank of Beirut (C) BSE $19.30 $19.30 0.00% BLC (C) BSE $1.90 $1.90 0.00% Fransabank (B) OTC $28.00 $28.00 0.00% BEMO (C) BSE $2.20 $2.20 0.00%

Mkt 10/02/12 3/02/12 % Change Banks’ Preferred Shares Index *

$104.32 $104.32 0.00%

BEMO Preferred 2006 BSE $100.00 $100.00 0.00% Audi Pref. D BSE $10.50 $10.50 0.00% Audi Pref. E BSE $100.40 $100.40 0.00% Byblos Preferred 08 BSE $102.00 $102.00 0.00% Byblos Preferred 09 BSE $102.00 $102.00 0.00% Bank of Beirut Pref. D BSE $26.25 $26.25 0.00% Bank of Beirut Pref. E BSE $26.00 $26.00 0.00% BLOM Preferred 2011 BSE $10.13 $10.13 0.00% Bank of Beirut Pref. H BSE $25.00 $25.00 0.00%

* 25 August 2006 = 100

1100

1200

1300

1400

1500

1600

Feb-11 May-11 Aug-11 Nov-11 Feb-12

BLOM Stock Index

HI: 1464.57

LO: 1163.93



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Real Estate

Mkt 10/02/12 3/02/12 % Change

Solidere (A) BSE $13.90 $14.09 -1.35% Solidere (B) BSE $13.95 $13.95 0.00% Solidere (GDR) LSE $14.15 $13.80 2.54%

With respect to the industrial sector, cement producer Holcim Liban lost 0.67% to close at $16.3. In brief, the activity on the Beirut Stock Exchange is undergoing a period of cautious trading amid regional disturbances. However, the coming week will likely mimic this week’s activity with a gradual incline in the BSI although the final say remains up to local and regional political developments.

Manufacturing Sector

Mkt 10/02/12 3/02/12 % Change

HOLCIM Liban BSE $16.30 $16.41 -0.67% Ciments Blancs (B) BSE $3.40 $3.40 0.00% Ciments Blancs (N) BSE $2.58 $2.58 0.00%

Funds

Mkt 10/02/12 3/02/12 % Change

Beirut Preferred Fund BSE $103.80 $103.80 0.00% BLOM Cedars Balanced Fund Tranche “A”

----- $6,628.91 $6,619.06 0.15%

BLOM Cedars Balanced Fund Tranche “B”

----- $5,190.69 $5,185.33 0.10%

BLOM Cedars Balanced Fund Tranche “C”

----- $5,034.70 $5,027.22 0.15%

BLOM Bond Fund ----- $10,016.99 $10,016.99 0.00%

Retail Sector

Mkt 10/02/12 3/02/12 % Change RYMCO BSE $2.50 $2.50 0.00% ABC (New) OTC $16.50 $16.50 0.00%

Tourism Sector

Mkt 10/02/12 3/02/12 % Change

Casino Du Liban OTC $540.00 $540.00 0.00% SGHL OTC $4.50 $4.50 0.00%



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Foreign Exchange Market

Lebanese Forex Market

10/02/12 3/02/12 %Change

Dollar / LP 1502.00 1502.00 0.00% Euro / LP 1999.40 1984.62 0.74% Swiss Franc / LP 1652.42 1647.00 0.33% Yen / LP 19.40 19.78 -1.92% Sterling / LP 2387.28 2389.24 -0.08% NEER Index** 98.57 98.62 -0.05%

*Close of GMT 09:00+2 **Nominal Effective Exchange Rate; Base Year Jan 2006=100 **The unadjusted weighted average value of a country’s currency relative to all major currencies being traded within a pool of currencies. The NEER represents the approximate relative price a consumer will pay for an imported good.

The local exchange rate between Lebanese banks remained this week at the lower end of the peg or at $/LP 1,500.5 - $/LP 1,503.5 with a mid-price of $/LP 1,502. The central bank’s (BdL) foreign assets (excluding gold) slid by a monthly 0.2% to $32.16 billion during the first month of 2012 while the dollarization rate of private sector deposits had increased slightly to 65.92% in December 2011 from 65.76% a month earlier.

Nominal Effective Exchange Rate (NEER)

In international markets, the euro headed for a gain this week as investors speculated a near agreement between Greece and its creditors. However, Europe’s singular currency slightly retracted Friday after EU leaders unexpectedly demanded additional austerity measures from Greece delaying the country’s much needed bailout. The Euro thus closed at $/€�1.3262 on Friday 12:30 pm Beirut Time adding 0.74% from the previous week causing the Lebanese Pound to depreciate to LP/€ 1999.4 from LP/€ 1984.62. The Nominal Effective Exchange Rate slid by 0.05% to 98.57 points, 0.43% lower than its year-start value.

Money & Treasury Bills Markets

Money Market Rates

Treasury Yields

10/02/12 3/02/12 Change bps

3-M TB yield 3.89% 3.89% 0

6-M TB yield 4.40% 4.40% 0

12-M TB yield 4.59% 4.59% 0

24-M TB coupon 5.34% 5.34% 0

36-M TB coupon 5.94% 5.94% 0

60-M TB coupon 6.18% 6.18% 0

10/02/12 3/02/12 Change bps

Overnight Interbank 2.75 2.75% 0 BDL 45-day CD 3.57% 3.57% 0

BDL 60-day CD 3.85% 3.85% 0

Broad money M3 fell by LP66B ($43.78M) during the week ending January 19 to attain LP147,581B ($97.9B). However, M3 rose by 0.69% from end of December 2011. M1 regressed during the week by LP209B ($138.64M) as money in circulation and demand deposits decreased by LP101B ($66.99M) and LP108B ($71.64M) respectively. Total deposits (excluding demand deposits) climbed by $94.38M following a $56.38M increase in term and saving deposits and a $38M rise in deposits denominated in foreign currencies. As for the dollarization rate of broad money, it advanced by 7bp on a weekly basis to 59.38%. The overnight interbank rate stood at 2.75% during the month of November, according to the Association of Lebanese Banks. On February 2, the Ministry of Finance (MoF) raised LP266.17B ($176.56M) through the issuance of Treasury Bills. The money collected from the auction was more than the LP219.71B ($145.75M) required to finance the maturing TBs. The 60M maturity paper captured the bulk of demand, accounting for 73.79% of total subscriptions, while the 3M and 6M papers represented the remaining 1.14% and 25.07% respectively. Yields across all maturities remained the same as the previous auction with the average discount rate for the 3M and 6M papers kept at 3.89% and 4.40% respectively, while the average coupon rate for the 60M paper stood at 6.18%. Worth noting that the Treasury department continued to undertake all accepted bids.

90.00

92.00

94.00

96.00

98.00

100.00

102.00

Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12



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Eurobond Market Eurobonds Index and Yield

10/02/12 3/02/12 Change Year to Date BLOM Bond Index (BBI)* 111.090 111.120 -0.03% 0.14% Weighted Yield** 4.74% 4.74% 0 -4 Weighted Spread*** 405 414 -9 -1 *Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market** The change is in basis points ***Against US Treasuries (in basis points)

Lebanese Government Eurobonds

Maturity - Coupon 10/02/12 Price*

3/02/12 Price*

Weekly Change%

10/02/12 Yield

3/02/12 Yield

Weekly Change bps

2012, Sep - 7.750% 103.10 103.10 0.00% 2.16% 2.34% -18 2013, Mar - 9.125% 106.75 106.75 0.00% 2.71% 2.82% -11 2013, Jun - 8.625% 107.25 107.25 0.00% 3.09% 3.16% -7 2014, Apr - 7.375% 107.88 107.88 0.00% 3.56% 3.59% -3 2014, May - 9.000% 112.25 112.25 0.00% 3.22% 3.26% -4 2015, Jan - 5.875% 105.25 105.25 0.00% 3.95% 3.96% -1 2015, Aug - 8.500% 115.00 115.00 0.00% 3.85% 3.87% -2 2016, Jan - 8.500% 115.13 115.25 -0.10% 4.27% 4.26% 1 2016, May - 11.625% 127.50 127.50 0.00% 4.43% 4.46% -3 2017, Mar - 9.000% 119.25 119.25 0.00% 4.71% 4.72% -1 2018, Nov - 5.150% 99.75 99.70 0.05% 5.19% 5.20% -1 2020, Mar - 6.375% 105.94 105.98 -0.04% 5.45% 5.45% 0 2021, Apr - 8.250% 118.75 118.63 0.10% 5.60% 5.62% -2 2022, Oct - 6.100% 102.25 102.25 0.00% 5.81% 5.81% 0

2024, Dec - 7.000% 108.00 108.00 0.00% 6.09% 6.09% 0 2026, Nov - 6.600% 103.19 103.13 0.06% 6.27% 6.27% 0

• Mid Prices ; BLOMINVEST bank

Demand for Lebanese Eurobonds moderated over the past week as local investors took a break following the market’s two-month uptrend and shifted their attention to the improving equity market. The BLOM Bond Index (BBI) slid 0.02% to 111.09 points keeping the portfolio’s average weighted yield flat at 4.74%, whereas the spread against the US benchmark yield narrowed 9 basis points (bps) to 405 bps as an encouraging labor market report in the US steered capital away from Treasuries and into equities. The BBI’s performance thus lagged behind that of JP Morgan emerging markets’ bond index that added 0.3% from last week. Lebanon’s credit default swap for 5 years (CDS) was last quoted at 457-485 bps, up from 440-480 bps last week. In regional economies, CDS quotes in Dubai and Saudi Arabia narrowed to 379-395 bps and 124-134 bps from 407-424 bps and 129-137 bps respectively. In emerging countries, Turkey’s 5-year CDS remained at 261-264 bps and Brazil’s 5-year CDS slightly narrowed to 136-139 bps.

4.00%

4.50%

5.00%

5.50%

6.00%

Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12

Weighted Effective Yield of Eurobonds

The Lebanon Brief Economic Statistics & Indicators of 14


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ECONOMIC STATISTICS & INDICATORS Commercial Banks Total Assets

Source: BdL

Commercial Banks Total Assets Reach $140.58B in 2011 The Lebanese banking sector showed robust balance sheet in 2011 despite the deceleration in economic and business activity, tensions among local political parties as well as the ongoing regional protest movements. In fact, the consolidated balance sheet of commercial banks recorded a yearly growth of 9.04% in 2011 to reach $140.58B, compared to a 12% growth recorded in 2010. As a percentage of the nation’s gross domestic product (GDP), total assets accounted for 346.5% in 2011, up from 328.9% in 2010. Resident and non-resident private sector deposits at commercial banks rose by 7.94% y-o-y to attain $115.71B. The dollarization rate of deposits stood at 65.92% in December 2011 compared to 63.24% recorded in December 2010. Claims on resident and nonresident private sector grew at a faster pace than deposits, climbing 12.73% from 2010 to $39.38B, and accounting for 97.05% of GDP compared to 89.1% in 2010. The dollarization rate of resident and non-resident private sector loans fell to 78.4% in 2011 from 80.28% in 2010 as the Central Bank continued to encourage lending in the local currency. Claims on public sector edged 0.31% down to $29.22B as Treasury Bills in Lebanese Pounds held by banks dropped 6.19% to $16.48B.

Balance of Payments

Source: BdL

Lebanon’s 2011 Balance of Payments Registers First Deficit in 10 years Lebanon’s Balance of Payment (BoP) recorded a surplus of $691.5 million in December 2011, as net foreign assets (NFA) of the Central Bank increased by $79.9 million and the NFA of Commercial Banks surged $611.6 million, data from BdL showed this week. This first surplus since June 2011 helped reduce the BoP’s annual deficit to $2 billion from almost $2.7 billion recorded in the first eleven months of the year. Countless geopolitical shocks in 2011 had negatively influenced leading economic drivers such as tourism and foreign investment sending the BoP to its first annual deficit since 2001. Lebanon’s deteriorating trade and capital accounts thus caused the BoP Deficit, where NFA of commercial banks dropped by $4.23 billion, overshadowing the $2.27 billion rise in the NFA of BdL.

94.26

115.25

128.93140.58

2008 2009 2010 2011

End of December ($B)

-1,168.9

1,564.2

3,386.0

168.5747.2

2,794.5

2,036.6

3,461.5

7,899.1

3,324.5

-1,996.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

In millions of dollars

The Lebanon Brief Economic Statistics & Indicators of 14


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Total Value of Cleared Checks

Source: ABL

Value of Cleared Checks Reach $5.9B in January The number and value of checks cleared by BdL increased by 1.54% to 1.06M and 5.5% to $5.9B in January 2012 compared to a total of 1.04M checks valued at $5.6B registered in the same month a year earlier. In details, the value of cleared checks denominated in Lebanese pounds attained $1.25B, up by 3.41% from January 2010, while the value of checks denominated in foreign currencies jumped by 5.91% to $4.66B, leading to a dollarization rate of checks of 78.91% as opposed to 78.51% registered a year earlier. With regard to defaulted checks, their value increased by 10.17% y-o-y to $122M, accounting for 2.07% of the total value of checks.

4,360

5,531 5,6085,909

2009 2010 2011 2012

In January ($M)

The Lebanon Brief Economic & Financial News of 14


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ECONOMIC AND FINANCIAL NEWS Kafalat Loan Guarantees

(In January) 2012 2011 2010

Number of Guarantees

69 103 134

Value ($M) 10.3 16.8 16.3

Average Value per Project ($) 149,932 163,038 121,717

Source: Kafalat

Kafalat Loan Guarantees Slide by 33% in January 2012 Business loan guarantees by Kafalat Company dropped by one-third in January 2012 from a year earlier as potential Lebanese entrepreneurs continued to delay starting up or expanding projects amid escalating political tensions in the region. The number of guaranteed loans during the first month of the year was 69, compared to 103 in January 2011, whereas the value of the corresponding loans fell by 38.4% to $10.35 million. The agricultural sector benefited the most from Kafalat’s services taking 43% of total guaranteed loans. Local industry accounted for 20 guaranteed loans, or 29% of the total, followed by Tourism with 13 guaranteed loans or 18.8% of the total figure. In terms of geographical distribution, 52 % of guaranteed business loans were located in Mount Lebanon, 14% were in the North, 12% in the South, and 10% in the Bekaa.

Consumer Confidence Index

Source: ARA Marketing Research & Consultancy

Consumer Confidence in Lebanon Fell y-o-y in January The Lebanese consumer confidence index (CCI) published by ARA Marketing Research & Consultancy dropped 37% y-o-y in January to settle at 92 points, negatively affected by the regional turmoil sweeping most Arab countries. On a monthly basis, the CCI declined by 14.81% from December 2011. The security sub-index decreased 2.74% to 213 with heightened domestic political disputes, while the current economic sub-index retreated 12.5% to 175. The personal income sub-index dropped 13.38% to 136. In addition, the decree to increase public and private wages as of February 2012, failed to revive consumer optimism with the expected personal income index falling 7.41% to 75 points. The expected durable goods consumption index declined 15.38% to 110, while the expected economic index (6 months forward) slipped 21.74% to 54, its lowest level since September 2010.

169185

146

92

2009 2010 2011 2012

In January

The Lebanon Brief Corporate Developments of 14


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CORPORATE DEVELOPMENTS Growth in Lebanon’s Insurance Premiums

International Finance Corporation Invests $124 Million in Medgulf The International Finance Corporation (IFC) announced a $124 million investment in Lebanese insurance firm Medgulf, aimed at helping the company expand further into MENA markets, where the insurance sector is still underdeveloped. The investment amounts to a 5% stake in the equity of the regional insurer and will allow it to extend its operational capabilities to countries such as Iraq, Egypt, and Turkey, according to statements made by the IFC and Medgulf chairman, Lutfi al-Zein. MENA countries suffer from extremely low rates of insurance coverage and further expansion will ease risk perception and promote both, investment and consumption. The Lebanese company LFZ Holding acquired Medgulf after having purchased 49% of the company’s stock from Saudi Oger in April 2011. IFC, a member of the World Bank group, had announced a $2 million investment in Lebanese software company MobiNetS in December 2011, as part of its bid to promote private firms in developing economies.

Source: Association des Compagnies d’Assurances au Liban

29%

15% 14% 14%11%

4%

Up to September 2011

The Lebanon Brief Focus In Brief of 14


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FOCUS IN BRIEF The Cost of Public Debt: Lebanon Compares Well with European countries Lebanon vs EU Debt: Yields and Rating

2Y 5Y 10Y S&P Rating

Lebanon* 3.59 4.72 5.81 B

Italy 3 4.33 5.5 BBB+

Spain 3.03 4.33 5.64 A

Ireland 4.44 5.53 7.01 BBB+

Portugal 15.78 16.91 13.71 BB

Greece 198.2 50.9 33.9 CC

US 0.25 0.8 2 AA+ *Foreign Currency Denominated Bonds Source: Bloomberg BLOM Bond Index 2008-2012

Source: Blominvest Bank- Research Department

While the world was facing its worst financial crisis in decades, with economies sinking into deep recessions and systemic risks materializing, Lebanon was realizing record economic growth rates, reaching on average 8.5% between 2008 and 2010. However, additional regional instability and internal political stalemate, made 2011 a difficult year to navigate through with economic growth decelerating sharply to 2.1%. On the financial front, Lebanon maintained its stability dealing efficiently with internal, regional and international shocks. Developed countries were facing high public debts and credit squeezes. Their sovereign ratings were tumbling and their financing costs were shooting through the roof, especially in Europe. In this context, Lebanon was able to maintain low financing costs on its debt, despite having lower sovereign rating than most European countries under consideration in this report. Lebanese yields on Eurobonds compare well with yields on mainly European countries bonds. Lebanon’s 2s, 5s, and 10s have a slightly higher yield than those of Italy and Spain but much lower yields than Ireland, Portugal, and of course Greece. At the same time, Lebanon’s sovereign rating is lower than that of all the countries mentioned above except for Greece. Lebanon’s yield curve seems to have somewhat flattened, following the US yield curve after the Fed declared that interest rates will remain low well into 2014 and that the Federal Reserve will buy long term government bonds in order to reduce

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1/1/2008 6/1/2008 11/1/2008 4/1/2009 9/1/2009 2/1/2010 7/1/2010 12/1/2010 5/1/2011 10/1/2011

The Lebanon Brief Focus In Brief of 14


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long term rates and boost economic activity; while in Europe, things are more complicated with Italy and Spain having a normal yield curve however less flat than Lebanon, and Portugal and Greece having an inverted yield curve as a result of the perception that they are at high risk of default. When comparing the public debt in Lebanon to European countries, we notice that its ratio to GDP is higher in Lebanon than in most of the considered countries in this report. Lebanon debt to GDP ratio was at 133% by the end of 2011, while ratios of government debt to GDP at the end of the third quarter of 2011 in European countries reached in Greece (159.1%), Italy (119.6%), Portugal (110.1%), Ireland (104.9%), and Spain (66%). So the evident question is how Lebanon is able to weather the financial crisis and keep its Eurobonds on demand while other countries with higher rating, had their yields increasing dramatically? The answer to this question comprises several components; however we will emphasize on three of them that we deem the most important. The first factor is confidence: Once the confidence in a country’s ability to payback its debt is lost, it will be a matter of time before the country actually defaults. When investors lose confidence in a country’s debt, they will try to get rid of these bonds from their portfolios, thus leading to a surge in interest rates as the country will have to increase rates to attract capital. In turn, this will lead to higher financing costs and higher debt. So the vicious circle is self-fulfilling. The second component is the type of holders of government debt: When the holders of the public debt are local, such as local banks, they are more resilient to external shocks and they won’t sell their bonds at the first sovereign distress as any government default on the public debt will eventually hit their balamce sheets. Even though the debt to GDP ratio in Italy is higher than in Portugal and Ireland, the yields remain lower and this for many reasons among them that the majority of holders of the Italian debt are Italian banks. The same apply to Lebanon where the Lebanese banks are the largest holders of Lebanese Eurobonds. When analyzing the BLOM Bond Index(BBI), a price index covering Lebanese Eurobonds, we can notice that the start of the international financial crisis in October 2008 was accompanied by a drop in Eurobonds prices and hence an increase in their yields. Foreign holders of Lebanese debt were liquidating their holdings of Lebanese papers to cover their losses on the international markets. The BBI went down by 11% to 89.01 by the end of October 2008 from a level of 100.14 two months before. Lebanese banks went in and start buying Eurobonds as the latter became undervalued. The Index recovered afterwards and outpaced the 100 benchmark by March 2009. The Index then reached 111.75 by end of February 2010. The third component is capital inflows: Lebanon has registered a positive balance of payments for the past 10 years and 2009 was a record year witnessing a surplus close to USD 8 billion. Lebanese capital markets are underdeveloped and do not present large investment opportunities, hence banks had to place their liquidity in few available other investments prospects among which government debt. Compared to international debts markets, the Lebanese Eurobonds’ market appears to be stable and resilient. Governments’ efforts during the past few years to reduce the fiscal deficit and lessen the debt to GDP ratio are in the right direction. Lebanon should target on the medium term or in the coming ten years a debt to GDP ratio of less than 110% in order to improve its rating and reduce even more its cost of debt.

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An error occurred in the fiscal policy part of the previous focus entitled “Lebanon’s Economic Performance in 2011: An Overview and Forward View”, and published on February 4th, 2012. Please find below the revised paragraph

The ministry of Finance issued successfully during the year three series of Eurobond. The first transaction occurred in May 2011 and was run by Byblos Bank, Fransa Invest Bank, and HSBC in May 2011. It consists of a $1 billion double-tranche offering; the first amounts $650 million, maturing in May 2019 and carrying a coupon rate of 6.00%. The second part of the issuance, amounting $350 million, is a reopening of the 6.10% coupon Eurobond due October 2012 at a yield of 6.475%, with international orders accounting for 29% of subscriptions. The second transaction was jointly led by BLOM Bank S.A.L. and Citi bank in July 2011. The first tranche of which carries a value of $500 million, maturing in 2016 with a coupon of 4.75%; the second tranche, amounting $700 million, matures in 2022 with a 6.20% yield. The third Eurobond issuance occurred in November 2011, managed by Standard Chartered, Deutsche Bank, and Fransa invest Bank. The issuance consists of a triple tranche offering; the first amounts Euro 445 million, maturing in November 2018 with a coupon rate of 5.35%; the second amounts $500 million maturing in November 2019 with a coupon rate of 5.45%; and the third amounts $375 million maturing in November 2026 with a coupon rate of 6.60%.

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Research Department: Malak Hawa [email protected] Walid Sayegh [email protected] Gaelle Khoury [email protected] Marwan Mikhael [email protected]

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