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1Week 32 August 05 - August 11, 2013

AUGUST 05 - AUGUST 11, 2013

WEEK 32

Bank Audi sal - Audi Saradar Group - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected]

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Treasury & Capital Markets

Micky Chebli(961-1) [email protected]

Nadine Akkawi(961-1) [email protected]

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Private Banking

Toufic Aouad(961-1) [email protected]

Corporate Banking

Khalil Debs(961-1) [email protected]

Marwan Barakat(961-1) [email protected]

Jamil Naayem(961-1) [email protected]

Salma Saad Baba(961-1) [email protected]

Fadi Kanso(961-1) [email protected]

Nathalie Ghorayeb(961-1) [email protected]

Sarah Borgi(961-1) [email protected]

Marc Harb(961-1) [email protected]

Nivine Turyaki(961-1) [email protected]

LEBANON MARKETS: WEEK OF AUGUST 05 - AUGUST 11, 2013

The LEBANON WEEKLY MONITOR

Economy___________________________________________________________________________p.2 ECONOMIC ACTIVITY SUSTAINS SLOWER GROWTH SO FAR IN 2013The Central Bank’s latest data on Lebanon’s coincident indicator, a gauge of economic activity, revealed that the momentum is still reflecting an environment of difficult conditions characterized by a sluggish economic growth. Also in this issuep.3 Kafalat guarantees down by 18.4% in the first seven months p.4 Imports of industrial machinery up by 20.8% in the first five months

Surveys___________________________________________________________________________p.5 HOTEL OCCUPANCY AT THE IMAGE OF LOCAL MACRO DEVELOPMENTS Ernst & Young issued its Middle East Hotel Benchmark Survey which showed that the performance of hotels situated in Lebanon’s capital city remains impacted by the ongoing contraction in the number of tourists.

Also in this issuep.6 Lebanon 19th globally in terms of gold holding

Corporate News___________________________________________________________________________p.7 NEW WORLD BANK US$ 6.4 MILLION PROJECT TO IMPROVE LEBANON'S MOBILE INTERNET SERVICES A new World Bank Group project will boost Lebanon’s mobile Internet systems and create quality jobs for a high-skilled labor force to help reverse the trend of unemployment especially among youth and women.

Also in this issuep.7 Australia’s Tripod International to develop Adma Hills p.8 Real estate brokerage firm Masahaat to expand to Africa p.8 Khattab Shipping launches operations in Amman and Dubai

Markets In Brief___________________________________________________________________________p.9 DECLINE IN US TREASURIES YIELDS TRIGGERS AN EXPANSION IN LEBANESE BOND SPREADS Lebanese capital markets were marked by a status-quo mood during this week that was shortened to three working days due to Fitr holidays. The equity market saw a tiny decline in prices, while the Eurobond market reported expansion in spreads and the FX market maintained its balanced activity. In details, a calm mood swayed over the stock market. The average daily trading value was limited to US$ 743 thousand this week versus US$ 1.8 million in the previous week, which resulted into a 58% fall in the trading volume index, while the price index retreated slightly by 0.3%. At the level of the bond market, prices remained almost unchanged, while the average spread widened by 8 bps to 356 bps due to a decline in international benchmark yields. On the FX market, demand and supply forces remained balanced despite concerns about prevailing local political and security conditions, mainly supported by the built-up confidence in the Central Bank’s strong ability to defend the currency peg, drawing on its large pool of foreign assets that have reached US$ 36.4 billion at end-July 2013 and covered 82.4% of LP money supply.



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ECONOMY______________________________________________________________________________ECONOMIC ACTIVITY SUSTAINS SLOWER GROWTH SO FAR IN 2013

The Central Bank’s latest data on Lebanon’s coincident indicator, a gauge of economic activity, revealed that the momentum is still reflecting an environment of difficult conditions characterized by a sluggish economic growth.

According to the Central Bank, the average coincident indicator posted a slight increase during the first five months of 2013, a progress from an already low base seen in the same period of 2012. The coincident indicator actually increased by 2.7% year-on-year in the aforesaid period of 2013, following a rise of 3.0% in the comparable period of 2012. While Lebanon is still in a state of economic slowdown, the country is managing to escape the recessionary trap on the back of some mitigating factors. As a matter of fact, Lebanon’s economic activity remains more or less the same as that seen in 2012 and 2011. Indeed, it is still subjected to the adverse spillover effects of the regional and local instabilities with the impact mainly being in the form of weaker investment, a slowdown of tourism and a decline in foreign trade. Luckily enough, some mitigating factors, mainly lying in the strong financial sector, managed to aid the country in recording a positive economic growth despite the slowdown. In details, the average coincident indicator, a measure of the economic momentum in the country, was up by 2.7% to reach 270.6 in the first five months of 2013 compared with 263.5 in the same period of 2012. This year’s rise is the slowest one seen since the first five months of 2011.

Sources: Central Bank of Lebanon, Bank Audi's Group Research Department

LEBANON'S AVERAGE COINCIDENT INDICATOR (FIRST 5M OF THE YEAR)



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The increase in the coincident indicator has been on a slower path since this year as multiple local events unfolded, ranging from the sporadic security drifts to the resignation of the government, all contributing to curtail economic activity.

Also, the slowdown remains partly attributed to the ongoing neighbouring conflicts which are still impacting Lebanon through several linkages of which, tourism, trade and investment. Indeed, a look at the average coincident indicator’s movement since the start of 2013 shows that on a monthly basis, it has been progressing at a consistently slower pace. In fact, it rose by a monthly 2.9% in January 2013, then by 1.3% in February 2013, by 0.8% in March 2013, by 0.24% in April 2013, and by 0.19% in May 2013. _____________________________________________________________________________KAFALAT GUARANTEES DOWN BY 18.4% IN THE FIRST SEVEN MONTHS

Figures released by the Kafalat Corporation indicate that loans extended to small and medium sized companies under the guarantee of Kafalat totaled LP 102.1 billion or US$ 67.7 million in the first seven months of 2013, down by 18.4% from the same period of last year.

Meanwhile, the aggregate number of guarantees amounted to 481 in the aforesaid period of 2013, compared with 609 guarantees given in the corresponding period of 2012.

Agriculture and industry captured the lion’s share in extended guarantees in the first seven months of this year, with 197 (or 41.0% of total guarantees) and 160 (or 33.3% of total guarantees), respectively. Tourism came in next with 86 guarantees (17.9%), followed by handicrafts with 24 guarantees (5.0%) and specialized technologies with 14 guarantees (2.9%).

Sources: Central Bank of Lebanon, Bank Audi's Group Research Department

KAFALAT GUARANTEES



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As for the distribution of guarantees by area, Mount Lebanon accounted for the majority of granted guarantees with 185 guarantees (38.5%), followed by the Bekaa with 115 guarantees (23.9%), the South with 57 guarantees (11.9%), the North with 51 guarantees (10.6%), Beirut with 37 guarantees (7.7%),and Nabattieh with 36 (7.5%). ______________________________________________________________________________IMPORTS OF INDUSTRIAL MACHINERY UP BY 20.8% IN THE FIRST FIVE MONTHS

According to the latest statistics released by the Ministry of Industry, the value of Lebanon’s imports of industrial machinery reached the equivalent of US$ 141.0 million in the first five months of 2013 compared with US$ 116.7 million in the same period of 2012. During the month of May 2013, the value of imports of industrial machinery reached US$ 31.9 million, up by 16.8% from a value of US$ 27.3 million posted in the same month of 2012.

The breakdown of imports of industrial machinery by country of origin shows that the majority came from Italy. Imports from the European country amounted to US$ 28.4 million, accounting for nearly 20.1% of total imports of industrial machinery. Germany came next with a total of US$ 24.9 million during the first five months of 2013, making up circa 17.6% of total imports of industrial machinery. It was followed by China with US$ 20.4 million during the aforementioned period of 2013, accounting for 14.5% of total imports of industrial machinery.

Sources: Ministry of Industry, Bank Audi's Group Research Department

IMPORTS OF INDUSTRIAL MACHINERY



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SURVEYS____________________________________________________________________________HOTEL OCCUPANCY AT THE IMAGE OF LOCAL MACRO DEVELOPMENTS

Ernst & Young issued its Middle East Hotel Benchmark Survey which showed that the performance of hotels situated in Lebanon’s capital city remains impacted by the ongoing contraction in the number of tourists.

Accordingly, the occupancy rate of four and five star hotels in Beirut was down by seven percentage points on an annual basis, moving from 65% in the first half of 2012 to 58% in the same period of 2013. Amongst 16 cities in the Middle East, Beirut posted the third most significant contraction in its occupancy rate, coming after Amman (-16 percentage points) and Cairo (-8 percentage points). The city of Makkah posted a weaker contraction of 5 percentage points. As to the rest of the cities included in the survey, their occupancy rates were higher on an annual basis, except for those of Cairo and Jeddah which were unchanged between the first half of 2012 and the same period of 2013. Ranked in the 14th position, the occupancy rate of hotels in Beirut was higher than that of Manama (45%) and Cairo (31%) while being surpassed by that of Amman (63%) and Kuwait (61%).

Concerning the average room rate, it declined by 21.0% to US$ 166 in the first half of 2013. The drop is the most significant one amongst the cities included in the survey. Such a retreat surpasses those posted by hotels in Manama (-5.3%), Doha (-3.7%), Riyadh (-4.3%) and Al Ain (-2.1%). In absolute terms, the average room rate of hotels in Beirut was the 11th highest one amongst the cities included in the survey. It surpassed that of Amman (US$ 158) and Al Ain (US$ 138) while being exceeded by that of Muscat (US$ 210) and Madina (US$ 186).

Sources: Ernst & Young, Bank Audi's Group Research Department

MIDDLE EAST HOTEL BENCHMARK SURVEY (1H13)



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With regards to the rooms yield, it was also on a downward path, decreasing by 29.9% year-on-year to reach US$ 96 in the first half of 2013. Such a decline is also the most significant one amongst the 16 Middle Eastern cities included in the survey. The contraction surpassed that of Amman (-16.2%), Cairo (-11.3%), Makkah (-0.5%) and Riyadh (-0.7%). In absolute terms, Beirut took the 12th position in terms of the value of rooms yield. At US$ 96, the value was equal to that of Manama and higher than that of Sharm El Shaikh (US$ 39), Cairo (US$ 28) and Hurghada (US$ 27). It was surpassed by the rooms yield of Amman (US$ 100) and Al Ain (US$ 99). _____________________________________________________________________________LEBANON 19TH GLOBALLY IN TERMS OF GOLD HOLDING

According to the latest figures released by the World Gold Council, official gold holdings in Lebanon stood at 286.8 tons as of August 2013. This amount places Lebanon in the 19th position amongst the 100 countries with the highest worldwide gold reserves and the second among the 14 surveyed countries within the MENA region. Lebanon’s gold holdings accounted for 24.5% of the region’s total and 0.9% of the world’s total.

On a global basis, Lebanon was outperformed by Venezuela, Saudi Arabia and the United Kingdom while it came before Spain, Austria and Belgium. Regionally, Lebanon’s gold reserves were surpassed by those of Saudi Arabia which totaled 322.9 tons. Lebanon’s holdings exceeded those of Algeria which had a total of 173.6 tons in gold reserves. It was followed by Libya with 116.6 tons, Kuwait with 79.0 tons, Egypt with 75.6 tons, Iraq with 29.8 tons, Syria with 25.8 tons, Morocco with 22.0 tons, Jordan with 14.2 tons, Qatar with 12.4 tons, Tunisia with 6.7 tons, Bahrain with 4.7 tons and Yemen with 1.6 tons.

In parallel, Lebanon’s gold holdings accounted for 22.1% of its foreign reserves which places it first out of the 14 countries within the MENA region and 20th out of 100 countries globally. Regionally, Lebanon was followed by Egypt and Kuwait (8.6%). Globally, it was outperformed by Pakistan (25.2%) and Spain (23.3%) while surpassing Belarus (21.9%) and Egypt (20.8%).

Sources: World Gold Council, Bank Audi's Group Research Department

MENA COUNTRIES' GOLD RESERVES STATISTICS



WEEK 32

CORPORATE NEWS______________________________________________________________________________NEW WORLD BANK US$ 6.4 MILLION PROJECT TO IMPROVE LEBANON'S MOBILE INTERNET SERVICES

A new World Bank Group project will boost Lebanon’s mobile Internet systems and create quality jobs for a high-skilled labor force to help reverse the spiraling trend of unemployment especially among youth and women.

The US$ 6.4 million Mobile Internet Ecosystem Project (MIEP) approved by the World Bank Board of Executive Directors last week will strengthen innovation and entrepreneurship in the Lebanese mobile Internet ecosystem.

Beneficiaries include software developers, university students and graduates, Information and Communication Technology (ICT) firms, industries where new software applications can improve productivity, and mobile users at large.

The project will increase entrepreneurial skills and practical training of the Lebanese talent pool to enhance competitiveness in the industry.

It will help create instruments to interact and develop innovation networks to increase global competitiveness. Moreover, areas of improvement will be identified to help the government implement needed reforms.

Creating a mobile Internet ecosystem in Lebanon will have a positive impact on the country’s labor market including greater geographic diversification, improved growth and increased retention of skilled workers.

With mobile technology well distributed across Lebanon, new economic opportunities will be possible in economically marginalized areas.

Fostering investment and capital accumulation in new and innovative sectors that use existing domestic human resources and skills can help unleash Lebanon’s potential for growth and over the long-term shift the economy towards a more sustainable growth path, as per the World Bank.

Lebanon is recognized for its strong education system and its multilingual and educated entrepreneurial population. It is important to build on this human capital when addressing economic growth and job creation, as per the same source.

The mobile Internet segment can create jobs and entrepreneurship opportunities for the Lebanese youth, as per the World Bank.

This project aims to strengthen digital skills and create new enterprises in the mobile Internet space which is a driver of economic growth and job creation, as per the same source. ______________________________________________________________________________AUSTRALIA’S TRIPOD INTERNATIONAL TO DEVELOP ADMA HILLS

Tripod International, an Australia-based real estate developer, is soon to start works on a new facility called Adma Hills, an eco-friendly residential gated community in Adma, Keserwan. The complex will be delivered in 2016, as per newswires.

The project would stretch over 7,000 square meters of hills in a landscaped area overlooking the Jounieh bay, as per the same source.

The new project includes 100 residential units ranging in size between 200 and 380 square meters, as per newswires.



WEEK 32

Amenities include a pool, gym, conference room, and cafeteria along with an open-air parking lots near each building, as per the same source.

Tripod International will explore potential future projects in the country. The developers are already active in Jordan and Egypt.______________________________________________________________________________REAL ESTATE BROKERAGE FIRM MASAHAAT TO EXPAND TO AFRICA

Beirut-based real estate brokerage firm Masahaat will set up operations in Africa, as per newswires. The firm will open offices in Ghana and Congo by February 2014, as per the same source.

According to officials from the entity, these offices will help it widen the scope of its operations in West Africa. The firm already has offices in Senegal, Nigeria, and Côte d’Ivoire, as per newswires.

Officials from Masahaat indicated that more than half of the company's clients from the African region are located in Nigeria, another 30% from Côte d’Ivoire and the rest are from Dakar.

The same source added that most of these clients buy their primary residence in the Lebanese market. They might as well purchase a secondary residence in their host country.

Masahaat will open a third local office in Jbeil to cover the needs of the north. The firm has an office in Beirut and another one in Tyr.

The firm has also signed partnership agreements in a number of countries such as Cyprus, France, and Holland. Masahaat is operational in more than 30 countries worldwide through joint ventures and partnership agreements with realtors, as per newswires. ______________________________________________________________________________KHATTAB SHIPPING LAUNCHES OPERATIONS IN AMMAN AND DUBAI

The local freight and logistics firm announced that it has launched operations in its brand new branches located in Amman and Dubai.

The amount of investment in these new entities was no less than US$ 140,000, as per newswires. The firm added that it is considering more destinations in the Arab Gulf in 2014.

According to Khattab Shipping officials, Dubai would enable it to access whole new markets including Kazakhstan and Pakistan, which both have huge turnovers.

Established in the early 70s, Khattab Shipping is a family-run business specializing in industrial and pharmaceutical transport. Its services include customs clearance, freight forwarding, distribution and warehousing, logistics, and trucking.



WEEK 32

CAPITAL MARKETS_____________________________________________________________________________MONEY MARKET: MONEY SUPPLY (M4) EXPANDS BY LP 177 BILLION

The money market maintained its calm mood during this week with the local currency liquidity remaining quite abundant. Within this context, the overnight rate stood at its low official level of 2.75% set by the Central Bank of Lebanon. No subscriptions in Certificates of Deposits were registered during this week. Interest rates on the 45-day and 60-day CDs categories remained stable at 3.57% and 3.85% respectively.

At the monetary aggregates level, figures for the week ending 25th of July 2013 released this week showed a decline in local currency deposits of LP 62 billion, as a result of a drop of LP 90 billion in LP time deposits and an increase of LP 28 billion in LP demand deposits week-on-week. Deposits in foreign currencies grew by US$ 125 million. These weekly variations compare to an average weekly rise of LP 15 billion for LP deposits, and an average weekly increase of US$ 78 million for foreign currency deposits since the beginning of the year 2013. Total money supply in its large sense (M4) expanded by LP 177 billion week-on-week. This compared to an average weekly growth of LP 169 billion since the beginning of the year.

On a cumulative basis, money supply in its large sense (M4) grew by LP 6,227 billion since the beginning of the year 2013. This is the result of a rise in local currency denominated time deposits of LP 1,808 billion, an increase in foreign currency deposits of LP 3,685 billion (the equivalent of US$ 2,444 million), a contraction in money supply (M1) of LP 460 billion, and a growth in Treasury bills held by the public of LP 1,194 billion.

_____________________________________________________________________________TREASURY BILLS MARKET: NOMINAL SURPLUS OF LP 52 BILLION

The secondary Treasury bills market was marked by a shy local activity on the overall during this week. At the level of the primary market, the auction results for value date 1st of August 2013 released by the Central Bank of Lebanon showed that total subscriptions amounted to LP 123 billion and were distributed as follows: LP 50 billion in the three-month category, LP 61 billion in the six-month category and LP 12 billion in the five-year category. These compare to maturities of LP 71 billion, resulting in a nominal surplus of LP 52 billion. In parallel, the latest auction’s results (August 08, 2013) showed stability in the average yields on the one-year, two-year and three-year categories at 5.35%, 5.84% and 6.50% respectively.

The latest monthly report released by the Association of Banks in Lebanon showed that the weighted yield on subscriptions in June 2013 reached 7.51% versus 6.29% in May as the high-yielding 8-year and 10-year categories were issued in June, while the outstanding Tbs portfolio reached LP 50,200 billion at end-June 2013 versus LP 49,305 billion at end-May 2013 and LP 49,334 billion at end-December 2012.

INTEREST RATES

Source: Bloomberg



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TREASURY BILLS

Sources: Central Bank of Lebanon, Bloomberg_____________________________________________________________________________FOREIGN EXCHANGE MARKET: BDL REMAINS ON THE SIDELINES

Demand and supply forces remained balanced during this week that was shortened to three working days due to holidays. Commercial banks traded the US Dollar at a rate hovering between LP 1,510 and LP 1,512 at the beginning of the week in view of some commercial offer for the green currency, yet the LP/US$ interbank rate closed higher at LP 1,511-LP 1,514 at the end of the week. Meanwhile, the Central Bank of Lebanon remained on the sidelines throughout the week.

EXCHANGE RATES

Source: Bank Audi’s Group Research Department

_____________________________________________________________________________STOCK MARKET: 0.3% DECLINE IN BSE PRICE INDEX

A calm mood reigned over the Beirut Stock Exchange during this three-day week. The total trading value was limited to US$ 2.2 million versus US$ 8.9 million in the previous regular week and an average weekly trading value of US$ 5.1 million since the beginning of the year 2013. The average daily trading value fell from US$ 1,782 thousand last week to US$ 743 thousand this week, resulting into a 58.3% drop in the trading volume index to close at 31.88. As far as prices are concerned, the BSE price index decreased by 0.3% to 104.85.

Banking shares captured 83.92% of the total trading value. Bank Audi’s “listed” share price fell by 1.7% to close at US$ 6.29. Byblos Bank’s “listed” share price declined by 0.7% to US$ 1.51. Solidere shares



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EUROBONDS INDICATORS

Source: Bank Audi’s Group Research Department

AUDI INDICES FOR BSE

Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department

accounted for 16.08% of activity. Solidere “A” share price rose by 1.0% to US$ 11.41, while Solidere “B” share price decreased by 0.6% to US$ 11.27.

All in all, the Beirut Stock Exchange’s performance compared to a 1.6% increase in other Arabian markets (as per S&P Pan-Arab Composite Index) and a 0.2% decline in other emerging markets (as per S&P Emerging Market Composite Index).

_____________________________________________________________________________BOND MARKET: EXPANSION IN AVERAGE SPREAD

A shy local and foreign activity was observed on papers maturing in 2016, 2017, 2018, 2022 and 2027. Foreign investors were better sellers while local market players were better buyers. Within this context, the average yield remained almost stable at 5.30%, while the average spread expanded by 8 bps to 356 bps due to a drop in international benchmark yields. For instance, the five-year US Treasuries yields declined by 14 bps to 1.38% over the same period as Asian and European stocks decreased, spurring investor demand for safest fixed-income securities. As to the cost of insuring debt, Lebanon’s five-year CDS spreads remained stable at 380-420 bps, with no change relative to the previous week.



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INTERNATIONAL MARKET INDICATORS

Sources: Bloomberg, Bank Audi's Group Research Department

___________________________________________________________________________DISCLAIMER

The content of this publication is provided as general information only and should not be taken as an advice to invest or engage in any form of financial or commercial activity. Any action that you may take as a result of information in this publication remains your sole responsibility. None of the materials herein constitute offers or solicitations to purchase or sell securities, your investment decisions should not be made based upon the information herein.

Although Bank Audi Sal Audi Saradar Group considers the content of this publication reliable, it shall have no liability for its content and makes no warranty, representation or guarantee as to its accuracy or completeness.

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