Incentives, Privatization needed at BSE


May 16, 2017


BEIRUT: The government must give incentives to investors to list on the Beirut Stock Exchange if it wants to grow the capital market, capital markets experts said Monday. “We need a clear policy by the government and the Finance Ministry whereby investors are offered incentives to encourage them to be listed on the BSE in a bid to grow the capital market in Lebanon,” said Tarek Zebian, director of research and communications at the Capital Markets Authority.

Zebian’s remarks came during a session about capital markets held within the framework of the Euromoney Conference at the Phoenicia Intercontinental Hotel. The conference aimed at discussing the economic impact of Lebanon’s domestic political stability.

Zebian said that investors tend to find it easier to deposit their money in banks for a hefty return, ranging between 6 percent and 7 percent on average. “This is why it is very important to educate investors about the benefits of going to the capital market by giving them incentives,” he said. “This is the main impediment that we have, but we will focus on it and the CMA has a list of things that it will be doing in this area,” he added.

Zebian’s remarks were reiterated by Souraya Machnouk, a partner at Abou Jaoude & Associates Law Firm, who said that investors must be given financial incentives to go to the capital market.

Machnouk explained that most companies in Lebanon today are small and medium-sized enterprises and they should be corporatized to be able to be listed on BSE. “This is why it is very important to give financial incentives to companies to go to the stock exchange while also changing from family-run enterprises to corporates,” she said.

For Mohieddine Kronfol, chief investment officer at Franklin Templeton Investments Middle East, the BSE should first attract local investors to invest in the capital market in a bid to encourage foreign investors. “We do not have a lot of opportunities on the stock exchange so we need to make efforts to create those opportunities whether through infrastructure projects or technology companies, for instance,” he said.

Zebian repeated Kronfol’s comments by saying that people in other countries are buying into their infrastructure through capital markets. “If citizens use their finances to invest in infrastructure through the capital market, this will increase capitalization and markets will be liquid,” he said.

Zebian cited Solidere as an example, saying it attracted a lot of people 20 years ago when there was no way for people to look at the capital market. “Solidere attracted people that were not interested in anything other than bank deposits because they saw a huge project,” he said.

Capital Markets experts at the Euromoney Conference also emphasized the need to privatize the BSE in order to attract investors.

“The CMA came across a wonderful path so far and I think we may have the most beautiful regulations, but one of the reasons behind the underdeveloped stock exchange is that it is not privatized,” Machnouk said. “I think a major stepping stone for any real development to benefit from the beautiful regulation is the privatization of the stock exchange.”

Machnouk noted that there isn’t any success story in the capital markets that did not start with privatization. “Capital markets in Palestine or Kuwait, for instance, were privatized but they also partnered with international alliances such as Nasdaq to trigger their development,” she said.

She also emphasized the need to maintain close relations between the CMA and the stock exchange to ensure the latter’s development. “There is a recent report by the OECD highlighting how close relations between the CMA in any country and the stock exchange are the main trigger for the development of stock exchanges,” she said.

Likewise, Zebian said a research by the CMA identified more than 40 companies that are interested in listing once the newly established and privatized BSE is created.

He also noted that the decision to privatize the BSE has already been taken and it is a technical matter to put it into play. “We are also licensing an electronic trading platform, which will kick off with the new privatized Beirut Stock Exchange to give it the boost it needs,” he said.

Janet Heackman, managing director at the European Bank for Reconstruction and Development, agreed with Machnouk on the need to privatize the BSE by saying that there exist only 11 investors today of whom 8 are financial institutions. “The BSE needs to broaden the investors’ segment. This is why it is absolutely critical to look at privatization of the BSE and to bring in key financial and strategic investors to develop it,” she said.