The Business Year

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Firas Safieddine

LEBANON - Finance

Stock Racing

Vice Chairman, Capital Markets Authority


Prior to his appointment at the Capital Markets Authority, Firas Safieddine served as the Senior Advisor to the Lebanese Minister of Economy and Trade, and later the Lebanese Minister of Finance for a period of almost five years. Before his involvement with the public sector, Safieddine was the managing director and head of the investment committee of a multi-million regional family office, overseeing investments and operations at the firm. Along with his full time job, Safieddine served on the board of directors of several investment companies in Lebanon, Saudi Arabia, Singapore, the UAE, and the UK, and was also an instructor of finance at the Olayan School of Business at the American University of Beirut. Safieddine holds an MBA from the University of Chicago, Booth School of Business.

"The success of any stock exchange is in its depth and breadth."

How would you assess the development of the capital markets in Lebanon over the last year?

There are many highlights worth mentioning. First, we are ready to launch a new set of regulations that include the license and registration, business conduct, market conduct, collective investment schemes, listing requirements, and more core regulations for the proper functioning of the system. Another major thing that happened since the last time we met was that the government decided to move forward on the much delayed privatization process of the Beirut Stock Exchange (BSE). Should the cabinet approve this within a month as we expect it to, we should have a new board for the BSE with new functions to ensure that the transfer of the existing stock exchange to the new stock exchange is smooth and without major obstacles when moving forward with the privatization process. As members of the newly formed transitional stock exchange board, the CMA will closely cooperate on due diligence efforts, evaluation, the RFP, and overseeing the bidding for privatization. In a parallel endeavor, we also moved ahead to launch an electronic trading platform (ETP) to attract SMEs, startups, bond traders, currency exchange managers, and the like to this platform. With these two things coming at the same time, we are sure that the ETP could be a service within the BSE to make things much more efficient.

The BSE has one of the lowest penetration rates in the region and is also one of the least diverse. How will privatization change this?

The success of any stock exchange is in its depth and breadth. We do not have that today. We haven’t listed a company for the past 15 years since there is no excitement about it; the BSE is not dynamic, and the younger generations are unaware of the possibilities to list their companies. This trend happened mainly due to the outdated regulatory system we had and the small level of capitalization of the stock exchange, which deterred investors from coming. That is the reason why we gave priority to creating a proper regulatory framework that reflects a solid and promising system. On the supply side, we believe that there are many companies out there that can be attracted to the BSE and we have solid family businesses and great SMEs performing even at regional levels. Also on the supply side, there are a few government-owned entities such the telecoms operators, Middle East Airlines, and the Casino Du Liban to name a few, that could create a major shift in the capitalization of the BSE once listed. On the demand side, entities interested in bidding for ownership of the new exchange should be able to ensure the ability to become market makers. The license will require that bidders show substantial financial capabilities and a successful track record in the business. Local banks and financial institutions alike have showed interest in participating in the bid for both the BSE and the ETP. Furthermore, we are hoping that the government will participate in the success of the new BSE, first by listing some state-owned institutions and by considering to offer some tax incentive packages to encourage listing and investing in the stock market.

Would the lack of awareness about the capital markets explain the underdevelopment of this sector in Lebanon?

Absolutely. The privatization of the BSE has been long due, and that would have prompted awareness about the capital markets. Today we have created the ecosystem and regulatory framework. Companies and institutions are more confident now that we have a regulatory system that will work. We are building on the potential of a fully fledged stock exchange that will be attractive enough for any Lebanese company to be interested in being listed. Globally, research has estimated that the stock market growth and the long-term real growth rate in GDP is a one-to-one relationship, i.e., stock market growth of one-third would increase real economic growth by one-third. Through a successful usage of the stock exchange we can achieve a reduction in the government’s debt-to-GDP ratio from 140% to a more acceptable figure. It is common knowledge that Lebanon has a strong, healthy financial system where banks, insurance, and financial corporations perform well even during adverse moments. Now we have the opportunity to complement our financial system with a well-functioning stock exchange. The long-term objective of the CMA would be to grow and develop the capital markets in order to strike a healthy balance between a debt-based financial system and capital markets-based financial system.

Many Lebanese companies are listed on foreign stock exchanges but are not traded in Lebanon. Is there a strategy to bring them back?

This is exactly what we are trying to do. First, from a supply-side perspective, the number of active financial brokerage firms was limited as there are certain barriers, one of them being the minimum capital required to license a financial intermediary, which is $1.6 million for the lowest tier and goes up to $5 million. Our new regulations have dissected the activities of capital markets into five categories: dealing, managing, advising, custody, and arranging. This move will reduce the minimum capital requirement from $1.6 million to as little as $100,000 depending on the category selected. We are confident that this will create an infrastructure of focused professional financial institutions that could help increase the appetite of local firms to trade and list on the BSE. I am also confident that this new procedure will attract many of the high caliber Lebanese diaspora financial professionals to set up base back in the country.

Most people look to commercial banks rather than the capital markets. Will an increase in the latter be detrimental to the activities of the former?

As mentioned earlier, we have a financial system that is purely debt based. And while banks today have reached close to 100% of GDP in terms of lending, capital adequacy ratios are on the rise. As such, lending through banks will become more expensive and thus contribute negatively to the economy in the longer term. A viable source of accessing capital would have to be through the capital markets, therefore shifting the current financial system from a debt-based to a capital markets-based system. And to answer your question, as to whether flourishing capital markets are detrimental to the banks, the answer is no; it is the banks themselves that are better positioned to champion such a shift in the system.

Do you see privatization coming in a certain time frame?

Seeing and hoping are two different things. We hope it will come soon, and we are very close to that. I can firmly say the BSE will be subsequently privatized, so change is imminent. My guess is that I will happen within the next 12 months or even less. I am very positive about the future of capital markets in the country; you have at one hand a solid regulator, banks and financial institutions that are ready to play an active role in the capital markets, and companies that have so much to benefit.



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