The late Rafiq Hariri was Mr Lebanon, and the impact of his assassination was sufficient to make swathes of the Lebanese population think the unthinkable – galvanising themselves to force the dominant Syrian security forces out of the country. There have since been increasing fears that the Arab world’s most vibrant expression of people power is being usurped by old-time politicians – such as the maverick Christian leader, General Michel Aoun – who hark back to the dark years of the civil war.
But the economy – the banking sector in particular – is resilient. The swift intervention of Banque du Liban (BdL), the central bank headed by Mr Hariri’s close ally, Riad Salameh, to support the Lebanese pound after the former premier was killed by a bomb on February 14 averted a financial crisis. Bankers were quick to reassure the markets that Lebanon would survive the tragedy. “There’s an unstated agreement that if Lebanon can pass through this difficult stage, the economy will be helped out by the international community,” said Joe Sarrouh, adviser to the chairman of Fransabank.
Stable outlook
Two weeks after Mr Hariri’s murder, Standard & Poor’s reaffirmed its long- and short-term sovereign debt ratings, maintaining a stable outlook. Lebanon’s replenished reserves, accelerating economic growth, robust financial sector liquidity and active debt management were seen as limiting the risk of immediate financial disaster.
By early March, shares in the Solidère real estate company had returned to their previous value on the Beirut Stock Exchange. Faisal Barbir, investment adviser at Arab Finance Corporation in Beirut, says: “What’s amazing is that the markets have held after the big blast.”
Politicians may come and go but, in Lebanese finance, old hands remain at the helm to steer Beirut through choppy waters. In late May, the government extended Mr Salameh’s term as governor for another six years. Mr Salameh, the architect of a more stable pound, was first appointed by Mr Hariri in 1993.
Even without political upheaval, it is not an easy ride – total sovereign debt reached $35.9bn at the end of 2004, equivalent to about 160% of GDP. Of this, external debt was $18.4bn, 18% up in 2004, largely due to a series of sovereign bond issues in May and November. Lebanon is by far the largest Middle Eastern issuer in the Eurobond market, making three-and-a-half times as many issues as Israel.
That external debt is not even bigger is down to the fact that much Lebanese paper is held by Beirut-based banks. This has long been seen by external creditors as a stabilising factor, helping to explain why a country with such a huge debt/GDP ratio could continue to be rated. Lebanon’s sovereign ratings are currently B- from Fitch Ratings and Standard & Poor’s, and B3 from Moody’s Investors Service.
Throughout its troubles, foreign and local investors have retained an appetite for Lebanese paper, and debt financing requirements are coming under control as a result of the government’s active debt management strategy, put in place in 2004.
Last month the Beirut authorities showed their ability to return to the market – and add to the debt burden – when a $500m deal emerged, divided into $250m three and eight-year tranches by lead managers Credit Suisse First Boston and Banque du Liban et d’Outre Mer (Blom Bank). CSFB and Blom, together with Deutsche Bank, also led the $1.375bn deal in November 2004.
However, months of political turmoil had some effect. The facility’s pricing was placed at the widest end that bankers initially envisaged – the tranche maturing in 2008 will offer a 7.5% yield and the 2013 issue will yield 8.75%.
Impact of elections
The timing of the issue interested political as well as market observers, coming ahead of the final week of Lebanon’s election process – when Mr Aoun re-emerged as a controversial major player – as well as before the anticipated rollover of about $350m of debt on June 30. Analysts see no end to political tensions after all the Lebanese have voted. But as The Banker went to press, there was no sign that the elections had affected the Lebanese pound or had more than a marginal influence on the performance of the Beirut Stock Exchange.
Even so, bullish regional investor sentiment is likely to continue to underwrite a market more than used to weathering political storms. Flush with liquidity from the oil price boom, Gulf investors have remained supportive of favoured shares such as Solidère and Blom. “Gulf investors love downtown Beirut and they saw big opportunities with prices going down,” Mr Barbir says of the market following Mr Hariri’s assassination. Barring a really major political disaster – something Lebanon’s friends will work to avoid – such sentiments will continue to prop up Lebanese markets and the local banks that sustain them.
