Lebanon Weekly Monitor September 20 - September 26, 2021 Week 39

LEBANON WEEKLY MONITOR SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

______Economy p.2 NEW GOVERNMENT WINS SIGNIFICANT VOTE OF CONFIDENCE ON THE BASIS OF ITS POLICY STATEMENT CONTACTS Lebanon’s new government won the support of a big majority from Parliament last week during a session that debated its policy statement and granted confidence vote to a Cabinet of 24 specialists Treasury & Capital Markets that should begin tackling a series of pressing problems facing the crises-hit economy.

Bechara Serhal Also in this issue (961-1) 977421 [email protected] p.3 Lebanon’s real estate sector picked up in the first eight months of 2021 p.4 Imports of petroleum derivatives declined by a yearly 8% in the first five months of 2021 Private Banking p.4 Payment cards down by almost 199 thousand cards in first seven months of the year

Toufic Aouad (961-1) 954922 Surveys [email protected] ______p.5 LEBANON’S RECOVERY PLAN SHOULD BE A COMPREHENSIVE REFORM PROGRAM TO Corporate Banking INTRODUCE IMMEDIATE REMEDIES TO THE UNDERLYING ECONOMIC WEAKNESSES, AS PER Carol Ayat GOLDMAN SACHS (961-1) 959675 According to a recent report by Goldman Sachs on Lebanon, resolving embedded losses in the [email protected] financial system will be the first challenge. Mohamad Baydoun (961-1) 959703 Also in this issue [email protected] p.5 Lebanon’s economy to contract by 7.9% in 2021, as per Bloomberg p.6 Lebanon ranks 95th in Economic Freedom of the World, says Fraser Institute Marketing and Communications Jean Traboulsi Corporate News (961-1) 977350 [email protected] p.7 GASOLINE PRICES IS NOW SUBSIDIZED AT LP 14,000, YET STILL BELOW MARKET RATE Lebanon's Energy Ministry raised the gasoline prices by around 15%.

Also in this issue RESEARCH p.7 Coordinated by Berytech, THE NEXT SOCIETY launches an Internationalization program for Lebanese start-ups p.7 AUB is branching to Cyprus and Dubai, main campus to remain in Beirut Dr. Marwan Barakat p.8 Sayrafa transacted a daily US$ 740k in week 17 (961-1) 977409 p.8 Founder Institute and Beirut Digital District offer fellowship to Levant Virtual Summer 2021 [email protected] program for free Salma Saad Baba Markets In Brief (961-1) 977346 [email protected] p.9 EQUITY AND BOND PRICES ON THE RISE PARALLEL TO CABINET CONFIDENCE VOTE Following the Parliament’s ratification of the new cabinet, which paves the way for a long-delayed economic Farah Nahlawi recovery plan and offers an opportunity to resume IMF talks, while international bondholders are showing (961-1) 959747 readiness to work closely with Lebanese authorities to find a “sustainable solution” on debt, and along with new oil [email protected] subsidy cuts, the country’s capital markets posted this week extended bond price gains for the third consecutive week since cabinet breakthrough and strong equity price rebounds, while the black FX market saw the Lebanese Zeina Labban pound plummet against the US dollar. In details, bond prices rose to 15.88 cents-18.0 cents per US dollar on Friday, (961-1) 952426 recovering from lows of 12-13 cents per US dollar seen prior to cabinet formation, mainly on bets that the positive [email protected] developments on the domestic political front would lead to constructive negotiations with bondholders. On the equity market, the BSE price index jumped by 6% after the confidence vote and following a decline in the market Michele Sakha value of bank US dollars on the parallel market. Finally, the black FX market saw the LP plummet against the (961-1) 977102 [email protected] US dollar to LP/US$ 15,700-LP/US$ 15,750 amid extended oil subsidy cuts and awaiting the new government’s recovery plan.

LEBANON MARKETS: SEPTEMBER 20 - SEPTEMBER 26, 2021

Money Market BSE Equity Market LP Tbs Market Eurobond Market ⬆ LP Exchange Market CDS Market - ⬌⬇ ⬆ Week 39 September 20 - September 26, 2021 ⬇ 1 Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected] SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

ECONOMY ______NEW GOVERNMENT WINS SIGNIFICANT VOTE OF CONFIDENCE ON THE BASIS OF ITS POLICY STATEMENT

Lebanon’s new government won the support of a big majority from Parliament last week during a session that debated its policy statement and granted confidence vote to a Cabinet of 24 specialists that should begin tackling a series of pressing problems facing the crises-hit economy. Out of the 100 lawmakers who voted following a morning and evening parliamentary session, 85 MPs voted for the government and 15 against. The remaining 17 lawmakers were not present during the vote.

The New Government Policy statement included the following:

• Resuming immediate negotiations with the IMF to reach an agreement on a support loan from the Fund, based on a short and medium-term financial program that stems from the recovery plan after updating it with the implementation of reforms in all areas that have become known and according to urgent priorities and in a way that achieves the public interest, and work to complete the economic plan and commit to implement it with the BDL after its approval by the Government.

• Developing a plan to reform the banking sector and restructure it as necessary and revitalize the economic cycle in a way that contributes to financing the private sector, with a priority given to guaranteeing the rights of depositors.

• Seeking, in cooperation with the parliament, to ratify a Capital Control law, while drafting a law that would address the financial and banking conditions after the October 17, 2019 events, especially those related to transferring funds abroad and the return of funds obtained from corruption crimes.

• Resuming negotiations with creditors to agree on a mechanism to restructure the public debt in a manner that serves Lebanon’s interests and does not place heavy burdens on the state and decide the best way to use the funds received from the Special Drawing Rights in a way that ensures sustainable use.

• Initiating the French Initiative and committing to all its provisions with full transparency and recommendations for reform, recovery and reconstruction, and proceeding with the update and development of the financial recovery plan and the completion of its economic reform policy that was presented at the Cedre Conference after re-examining the list of projects of the CIP and benefiting from the recommendations of the economic study of McKinsey, especially in terms of supporting all productive sectors to shift from a rentier economy to a productive economy at large.

• Determination to adjust salaries and wages in the public sector with all its characteristics, on the basis of a study prepared by the MoF that considers the financial resources of the state.

• Reducing tax evasion, amending the Public Accounting Law, and expediting the completion of a new customs legislation and approval of the comprehensive strategy for customs reforms and its implementation program.

• Engaging to complete the Government general budget for the year 2022, with an emphasis on including reform items with respect to public finances.

• Revisiting the current support policy and moving towards a social policy capable of bridging social gaps.

Week 39 September 20 - September 26, 2021 2 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

______LEBANON’S REAL ESTATE SECTOR PICKED UP IN THE FIRST EIGHT MONTHS OF 2021

The real estate sector in Lebanon rose slightly in the first eight months of this year after witnessing a slowdown phase earlier as the new payment methods required are higher prices in local US dollars or in fresh US dollars. The upward trend in local dollars is tied to the growing willingness among Lebanese depositors to resort to safe haven in order to avoid further haircuts on their financial placements.

In details, on the demand side, the number of sales operations went up from 45,047 operations in the first eight months of 2020 to 58,053 operations in the first eight months of 2021 or 28.9%, according to the latest statistics published by the General Directorate of Land Registry and Cadastre.

In parallel, the value of property sales transactions posted an incline of 2.2% year-on-year to reach a total of US$ 8,576 million during the same period of 2021. Most regions recorded increases in the value of sales transactions, with the most significant movements coming as follows: North (+108.7%), Bekaa (+22.2%), Nabatiyeh (+20.5%) and the South (+19.6%).

In this context, the average sales value retreated from US$ 186,230 in the first eight months of 2020 to US$ 147,724 in the corresponding period of this year.

As for the breakdown of the value of property sales, Beirut continued to capture the highest share over the period with a share of 27.5%, followed by Baabda with 19.4%, Metn with a share of 16.0% and Keserouan with a share of 12.0%.

Moreover, property taxes followed a rising trend as well, these ameliorating from US$ 356.8 million in the first eight months of 2020 to US$ 418.0 million, a yearly rise of 17.1%.

NUMBER OF SALES OPERATIONS

0,000 2, 2,202 0,000 ,6 ,1 6,1 0, 0,000 6,6 6,2 60,1 ,0 60,000 0,2 0,000 ,0 0,000 0,000 20,000 10,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 8M-2020 8M-2021

Sources: Directorate of Land Registry and Cadastre, Bank Audi's Group Research Department

VALUE OF SALES TRANSACTIONS (US$ MILLION) 16,000

1,000 1, 12,000

10,000 , ,000 ,1 ,26 ,0 , ,6 ,006 ,02 ,1 , 6,000 6,

,000

2,000

0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 8M-2020 8M-2021

Sources: Directorate of Land Registry and Cadastre, Bank Audi's Group Research Department

Week 39 September 20 - September 26, 2021 3 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

______IMPORTS OF PETROLEUM DERIVATIVES DECLINED BY A YEARLY 8% IN THE FIRST FIVE MONTHS OF 2021

Imports of petroleum derivatives registered a year-on-year drop of 8.2% over the first five months of 2021. The latter retreated from 2,927,900 metric tons to 2,688,916 metric tons between both periods, as released by the Central Bank of Lebanon.

It is worth noting that the imports of petroleum derivatives stood at 7,686,060 metric tons in 2020, down from 8,049,695 metric tons in 2019. IMPORTS OF PETROLEUM DERIVATIVES (METRIC TONS)

10,000,000 ,1, ,00, ,0,0 ,0,6 ,000,000 ,66,060 -

6,000,000

,000,000 2,2,00 2,6,16

2,000,000

- 2016 2017 2018 2019 2020 5M-2020 5M-2021 ______PAYMENT CARDS DOWN BY ALMOST 199 THOUSAND CARDS IN FIRST SEVEN MONTHS OF THE YEAR

As per the latest figures released by the Central Bank of Lebanon, the number of bank payment cards issued reached 2,635,029 cards at end-July 2021, down from 2,833,701 cards at end-2020, constituting a drop of 198,672 cards or -7.0% over the first seven months of the current year.

In details, the number of resident credit cards revealed a continuous drop by 86,099 cards over the same period, followed by a decline in the number of resident debit cards by 89,777 cards, and an increase in resident prepaid cards by 3,943 cards, within the context of the ongoing deleveraging by Lebanese banks which are operating under very challenging conditions.

In parallel, the total number of ATMs reached 1,807 at end-July 2021, the equivalent of a drop of 67 ATMs over the first seven months of the year. Beirut & the suburbs actually captures the highest share in the number of ATMs with a share of 36.9% of total, followed by Mount Lebanon with 35.6%, North Lebanon with a share of 10.6% and South with 7.9%.

Finally, the number of points-of-sales machines regressed by 4.7% representing 1,811 POS machines over the first seven of 2021, to reach 36,748 machines. NUMBER OF BANK PAYMENT CARDS

,00,000

,06,6

,000,000 2,,01 2,6,12 2,,10 2,6,02 2,6,

2,00,000

2,000,000

1,00,000

1,000,000 2016 201 201 201 2020 -2021 Source: BDL, Bank Audi's Group Research Department Week 39 September 20 - September 26, 2021 4 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

SURVEYS ______LEBANON’S RECOVERY PLAN SHOULD BE A COMPREHENSIVE REFORM PROGRAM TO INTRODUCE IMMEDIATE REMEDIES TO THE UNDERLYING ECONOMIC WEAKNESSES, AS PER GOLDMAN SACHS

According to a recent report by Goldman Sachs on Lebanon, resolving embedded losses in the financial system will be the first challenge. The second aspect of the recovery plan should be a comprehensive reform program that aims to introduce immediate remedies to the underlying economic weaknesses that have led Lebanon to the current situation, as well as long-term policies to ensure the economy and public finances remain on a sustainable footing the future, as per Goldman Sachs. The plan will need to be far-reaching, covering at least the following areas:

1. Fiscal reform: A key part of this will be reform of the energy sector and the state-owned power company Electricite du Liban (EdL), but measures to broaden and deepen the revenue base while consolidating public expenditures are also necessary.

2. Financial/monetary reform: Reform of the LP peg and unification of the exchange rate should be front and center of any reform program. Financial system reforms are also likely to be necessary, including a review of the role of the BdL, and addressing negative externalities arising from large remittance inflows.

3. Economic reform: A fundamental shake-up of Lebanon’s remittance-dependent economic model is required, aimed at improving international competitiveness and boosting the export sector in order to address external imbalances.

4. Political reform: While wholesale change in the political system is unlikely (given the precarious sectarian dynamics, as discussed below), bolstering accountability and reducing corruption are key to re-establishing confidence in the political class. This is crucial for the credibility of the government’s commitment to the reform effort in the future.

According to the report, the recovery plan, like any reform, will entail short-term pain for long-term gain. The question of how to distribute the short-term pain of reform among the various factions of society is an inherently political one in any country, but in Lebanon, resolving this question is significantly complicated by a number of factors, including (but not limited to) sectarianism, vested interests, the threat of violence and external influence.

Furthermore, the first port of call for the Lebanese government is the IMF. There are several reasons why this is so. First, an IMF program has become a prerequisite for unlocking financial aid pledged at the Economic Conference for Development through Reforms with the Private sector (CEDRE) in Paris in April 2018. Second, an IMF program would provide much-needed financial support during Lebanon’s economic recovery and adjustment. Third, the technical assistance and expertise of the IMF will be needed in the design and implementation of the recovery plan and economic reforms. Fourth, the monitoring function of an IMF program will be critical to rehabilitate and maintain confidence in the Lebanese authorities’ reform efforts, potentially crowding in sources of financing beyond CEDRE, including an eventual return to international capital markets. Moreover, restructuring of the public debt is critical to Lebanon’s recovery for two main reasons. First, a large portion of public debt is held by the local financial system, including commercial banks and the BdL. Resolving the current default is therefore an important aspect of dealing with the embedded losses, as described earlier, and putting the financial system on a sustainable footing. Second, resolving the default is required in order to rehabilitate market confidence in Lebanon as an issuer and pave the way for future access to capital markets. In terms of sequencing, the debt restructuring process will be intertwined with the government’s discussions with the IMF, not least because the terms that the sovereign will be able to offer creditors are constrained by the IMF’s debt sustainability analysis. Moreover, the IMF’s Lending into Arrears policy requires that the sovereign be engaged with creditors in good faith negotiations. ______LEBANON’S ECONOMY TO CONTRACT BY 7.9% IN 2021, AS PER BLOOMBERG

According to a recent survey by Bloomberg, Lebanon’s GDP is expected to contract by a yearly 7.9% in 2021, while the latter is expected to report a yearly growth of 2.4% in 2022 and 2.0% in 2023.

Inflation is expected to stand at 110.5% in 2021 and to register 35.3% and 9.9% in 2022 and 2023 respectively, as per Bloomberg. As for current account, it is expected to register a deficit of 12.2% in 2021, 8.8% in 2022 and 15.0% in 2023.

Furthermore, the budget deficit is expected to stand at 5.9% in 2021 and 5.1% in 2022, as per the same source.

Week 39 September 20 - September 26, 2021 5 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

______LEBANON RANKS 95TH IN ECONOMIC FREEDOM OF THE WORLD, SAYS FRASER INSTITUTE

According to the Fraser Institute report titled “Economic Freedom of the World – 2021 Annual Report” in which it uncovers economic freedom scores for the year 2019, Lebanon was assigned a score of 6.76 in the 2019 index of economic freedom, ranking as such 95th.

The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. Forty- two data points are used to construct a summary index, along with a Gender Legal Rights Adjustment to measure the extent to which women have the same level of economic freedom as men. The degree of economic freedom is measured in five broad areas.

In details, Lebanon scored 8.12 on the size of the government and ranked 22nd globally. At the level of legal system and property rights, the country scored 4.1 with a global rank of 129. As for sound money, the country scored 9.2 and ranked 73rd. Lebanon scored 5.9 at the level of freedom to trade internationally with a global rank of 139. At the level of regulation, Lebanon scored 6.5 with a global rank of 130.

Regionally, Lebanon ranked above Kuwait (6.72) and Morocco (6.69), while being preceded by the Qatar (7.09) and Saudi Arabia (6.85).

Globally, Hong Kong remains in the top position. Singapore, once again, comes in second. The next highest scoring nations are New Zealand, Switzerland, Georgia, United States, Ireland, Lithuania, Australia and Denmark.

ARAB MENA REGION'S ECONOMIC FREEDOM RATINGS FOR 2019

Rank Score Jordan 50 7.59 Bahrain 65 7.33 United Arab Emirates 68 7.28 Qatar 80 7.09 Saudi Arabia 91 6.85 Lebanon 95 6.76 Kuwait 98 6.72 Morocco 102 6.69 Oman 102 6.69 Djibouti 105 6.68 Somalia 107 6.67 Comoros 113 6.55 Mauritania 120 6.49 Tunisia 139 5.97 Iraq 148 5.74 Egypt 149 5.68 Yemen 155 5.45 Syria 158 5.19 Algeria 162 4.90 Libya 163 4.79 Sudan 164 4.19

Sources: Fraser Institute, Bank Audi's Group Research Department

Week 39 September 20 - September 26, 2021 6 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

CORPORATE NEWS ______GASOLINE PRICES IS NOW SUBSIDIZED AT LP 14,000, YET STILL BELOW MARKET RATE

Lebanon's Energy Ministry raised the gasoline prices by around 15%, where the new rates are: - 95-octane gasoline for LL202,000/ 20 liters - 98-octane gasoline for LL209,000/ 20 liters

The International Information sal issued a report last week stating the price of 95-octane gasoline registered a hike of 608% over the past year. In the context, it mentions if the fuel subsidy was completely lifted, given the oil prices stabilize globally and the exchange rate US$/LP implemented is LP 15,000, the price of a gasoline will reach LP 214,200, noting the below:

-The stability of customs duties and the internal consumption fee is at LP 5,600.

-The station owner’s commission increased from LP 1,900, to LP 3,000, to LP 4,000 and finally to LP 6,000.

-The owners of the stations request an increase in this share as the LP 1,900 constituted 7.7% of the selling price. Currently, their commission dropped to 3.4% of the selling price. However, the fair share according to them should range between LP 10,000 and LP 14,000.

-The transportation fee and the distribution company's share increased from LP 840 to LP 1,540 to LP 2,240.

It is worth mentioning that the price of gasoline increased from US$ 7 in September 2020 to US$ 12 in September 2021. Note that, when the price of gasoline was subsidized by 90% at the official exchange rate of LP 1515, the unsubsidized 10% formed at LP 3,800 and rose to LP 13,200 with the rise in the US$ exchange rate in the black market.

______COORDINATED BY BERYTECH, THE NEXT SOCIETY LAUNCHES AN INTERNATIONALIZATION PROGRAM FOR LEBANESE START-UPS

Berytech, THE NEXT SOCIETY partner in Lebanon, is to launch consultation to develop an internationalization program for Lebanese start-ups to build international strategies and access international markets with a special focus on EU markets. This program will be used as a national mechanism for Lebanon to be adopted by various ecosystem partners to support their start-up networks in this challenging economic situation.

Similar to the previous missions conducted, this project will be implemented at the national level as a direct follow-up of the public-private dialogue conducted during the advocacy panel meetings initiated by the project to contribute to the implementation of policy measures or instruments in the field of innovation and competitiveness.

This mission takes place in the context of the financial and economic crises in Lebanon to which is added the COVID-19 impact on the health sector and economy. High rates of skilled labor and start-ups migration, business shutdowns and a current challenging context for businesses to thrive.

______AUB IS BRANCHING TO CYPRUS AND DUBAI, MAIN CAMPUS TO REMAIN IN BEIRUT

The American University of Beirut (AUB) is to open a campus in Paphos (Cyprus) in the next two years, pending academic accreditation approval. The project is part of the AUB’s regional expansion strategy that was approved more than two years ago. The expansion will be financed by AUB’s own resources, by grants from host countries and donors. The main campus will remain in Beirut and its role will not be diminished by the new expansion.

It is worth mentioning that AUB seeks further opportunities to branch in Dubai, other Arab country and Africa.

Week 39 September 20 - September 26, 2021 7 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

______SAYRAFA TRANSACTED A DAILY US$ 740K IN WEEK 17

The daily average volume of transactions on Sayrafa foreign exchange platform during the 17th week was US$ 920 thousand when compared to previous week with a daily average transacted volume of US$ 1.0 million (against a cumulative daily average volume since the launch of Sayrafa of US$ 1.9 million).

The daily average conversion rate for week 17 is LP 13,940 when compared to daily average conversion rate of previous week for LP 14,000 (against the cumulative daily average conversion rate since the launch of Sayrafa for LP 14,209). The Central Bank (BDL) announced that the conversion rate at end of week 17 was LP 14,300, while the conversion rate reported by end of week 16 was LP 13,200.

SAYRAFA PLATFORM DAILY AVERAGE

18,000 1,2 16, 16,60 16,200 1,0 16,000 1,000 14,000 12,000 1,0

10,000 8,000 6,000

4,000 1,00 2,000 0 00 1,10 1,100 1,02 20 0 11th we ek 12th we ek 13th week 14th we ek 15th week 16th we ek 17th we ek

exchange rates (in LP ) Volume transacted (in US thousand)

Sources: BDL, Bank Audi's Group Research Department ______FOUNDER INSTITUTE AND BEIRUT DIGITAL DISTRICT OFFER FELLOWSHIP TO LEVANT VIRTUAL SUMMER 2021 PROGRAM FOR FREE

The Founder Institute, one of the world's pre-seed accelerator, is offering applicants from the Beirut Digital District community with the Beirut Digital District fellowship to participate in the Levant Virtual Summer 2021 program worth US$ 266 for free.

In this context, any individual with a pre-seed startup or an idea can apply to the Founder Institute free where the best applicants who will be accepted would receive a fellowship to the Levant chapter of the global accelerator program.

The Founder Institute aims to provide the funding and supporting network of start-up experts that would invest in the success of the desired applicants through a structured business-building process that helped alumni raise over US$ 1 billion. Through the combined benefits of the Founder Institute and Beirut Digital District, a global support network for early-stage founders to impact their present and influence their future. The Founder Institute focuses on helping tech or tech-enabled businesses at the pre-seed stage, including both solo-founders and teams. This includes established businesses that are pre-funding and traction, MVP and prototype-stage projects and even part-time founders with just ideas.

Week 39 September 20 - September 26, 2021 8 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

CAPITAL MARKETS ______MONEY MARKET: COST OF LP CASH STABLE AT 7%-7.5%

The cost of LP cash remained stable at 7%-7.5% on the parallel market over this week. Concurrently, the overnight rate remained quoted at 3%, noting that its official rate stands at 1.90%.

In parallel, the latest monetary aggregates released by the Central Bank of Lebanon for the week ending 9th of September 2021 showed that total resident banking deposits contracted by LP 569 billion. This is mainly attributed to a LP 599 billion fall in total LP resident deposits amid a LP 402 billion drop in LP demand deposits and a LP 197 billion decline in LP saving deposits, while foreign currency resident deposits expanded slightly by LP 30 billion (the equivalent of US$ 20 million as per the official rate of LP 1,507.5).

INTEREST RATES

24/09/21 17/09/21 31/12/20

Overnight rate (official) 1.90% 1.90% 1.90% 7 days rate 2.00% 2.00% 2.00% 1 month rate 2.75% 2.75% 2.75% → 45-day CDs 2.90% 2.90% 2.90% → 60-day CDs 3.08% 3.08% 3.08% → →

Source: Bloomberg → ______TREASURY BILLS MARKET: NOMINAL WEEKLY DEFICIT OF LP 89 BILLION

The latest Treasury bills auction results for value date 23rd of September 2021 showed subscriptions in the six-month category (offering a yield of 4.0%), the two-year category (offering a coupon of 5.0%) and the ten-year category (offering a coupon of 7.0%).

In parallel, the Treasury bills auction results for value date 16th of September 2021 showed that total subscriptions amounted to LP 270 billion, distributed as follows: LP 3 billion in the three-month category (offering a yield of 3.50%), LP 7 billion in the one-year category (offering a yield of 4.50%) and LP 260 billion in the five-year category (offering a coupon of 6.0%). These compare to maturities of LP 359 billion, resulting into a nominal weekly deficit of LP 89 billion.

______FOREIGN EXCHANGE MARKET: LP FALLS AGAINST US DOLLAR AS SUBSIDY REMOVAL LOOMS

Amid extended oil subsidy cuts while all market players await the new government’s economic recovery plan that would pull the country out of a myriad of accumulated crises and help addressing macroeconomic imbalances and structural bottlenecks, and as the international community is reiterating that no financial support would be provided to Lebanon without reforms, the black FX market saw this week the Lebanese pound plummet against the US dollar. The LP/US$ exchange rate crossed the LP/US$ 16,000 level towards the end of the week, before marginally recovering to LP/US$ 15,700- LP/US$ 15,750 on Friday. This compared to a rate of LP/US$ 14,800-LP/US$ 14,850 at the end of last week.

In parallel, the Central Bank of Lebanon announced this week that FX operations on the “Sayrafa” platform were executed at an average rate of LP/US$ 14,000 to LP/US$ 14,200 between 21st of September and 23rd of September 2021.

Week 39 September 20 - September 26, 2021 9 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

TREASURY BILLS

24/09/21 17/09/21 31/12/20 3-month 3.50% 3.50% 3.50% 6-month 4.00% 4.00% 4.00% 1-year 4.50% 4.50% 4.50% ⬌ 2-year 5.00% 5.00% 5.00% ⬌ 3-year 5.50% 5.50% 5.50% ⬌ 5-year 6.00% 6.00% 6.00% ⬌ 7-year - - 6.50% ⬌ 10-year 7.00% - 7.00% ⬌ Nom. Subs. (LP billion) 270 122 Short-term (3&6 mths) 3 - Medium-term (1&2 yrs) 7 - Long-term (3 yrs) - 20 Long-term (5 yrs) 260 - Long-term (7 yrs) - 102 Maturities 359 191 Nom. Surplus/Deficit -89 -69

Sources: Central Bank of Lebanon, Ministry of Finance ______STOCK MARKET: STRONG EQUITY PRICE RALLY, HELPED BY PRICE REBOUNDS IN REALTY STOCKS

After four consecutive weeks of price contractions, equity prices on the Beirut Stock Exchange headed north over this week, as reflected by a 6.3% surge in the price index, mainly on improved sentiment following the Parliament’s ratification of the new cabinet, and as some market players sought to add realty stocks to their holdings following a decrease in the market value of bank US dollars on the parallel market.

A closer look at individual stocks shows that Solidere “A” and “B” share prices jumped by 16.2% and 11.7% respectively week-on-week to reach US$ 29.45 and US$ 29.02 respectively. At the level of banking stocks, BLOM’s GDR price surged by 12.4% to US$ 3.90. In contrast, BLOM’s “listed” share price fell by 9.3% to US$ 3.52. Bank Audi’s “listed” share price dropped by 13.2% to US$ 2.30. Byblos Bank’s Preferred shares 2009 registered price retreats of 1.0% to US$ 37.99. BEMO’s “listed” share price shed 4.5% to US$ 1.05. Amongst industrials, Holcim Liban’s share price edged down by 0.1% to US$ 18.03.

As far as trading volumes are concerned, the BSE total turnover contracted by 60.3% week-on-week, moving from US$ 23.8 million last week to US$ 9.4 million, noting that Solidere shares captured the lion’s share of activity (80.9%). ______BOND MARKET: BOND PRICES UP FOR THIRD CONSECUTIVE WEEK SINCE CABINET BREAKTHROUGH After winning a confidence vote from the Parliament, which offers the new government an opportunity to launch a much-needed economic reform program, and while international bondholders are urging the new cabinet to resume efforts to restructure Eurobonds while showing readiness to work closely with

EXCHANGE RATES

24/09/21 17/09/21 31/12/20 LP/US$ 1,507.50 1,507.50 1,507.50 LP/£ 2,068.14 2,079.60 2,048.54 LP/¥ 13.65 13.71 14.61 ⬌⬆ LP/SF 1,631.32 1,625.69 1,706.67 ⬆ LP/Can$ 1,189.54 1,192.64 1,178.66 ⬇ LP/Euro 1,769.20 1,775.38 1,851.21 ⬆ ⬆ Source: Bank Audi’s Group Research Department

Week 39 September 20 - September 26, 2021 10 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

AUDI INDICES FOR BSE v 22/1/96=100 24/09/21 17/09/21 31/12/20 Market Cap. Index 434.00 408.23 302.49 Trading Vol. Index 84.50 212.96 86.63 ⬆ Price Index 91.11 85.70 63.50 ⬇ Change % 6.31% -11.91% 4.60% ⬆ ⬆ 24/09/21 17/09/21 31/12/20 Market Cap. $m 10,296 9,685 7,176 No. of shares traded (Exc. BT) 1,098,041 1,059,450 650,340 ⬆ Value Traded $000 (Exc. BT) 9,445 23,807 5,834 ⬆ o.w. : Solidere 7,637 23,528 5,565 ⬇ Banks 1,808 246 264 ⬇ Others 0.2 33 5 ⬆ Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department ⬇

authorities to find a “sustainable solution”, Lebanon’s Eurobond market saw this week extended price gains for the third consecutive week since cabinet formation.

Sovereigns saw across-the-board price expansions of 0.13 pt to 0.75 pt week-on-week. Accordingly, prices ranged between 15.88 cents and 16.88 cents per US dollar, except for longer-term sovereigns maturing in 2037 which traded at 18.0 cents per US dollar. Within this context, Goldman Sachs said in a recent report that “their base scenario of a 75% haircut implies a recovery value between 15 cents and 20 cents on the US dollar, in line with the current market value of Lebanese Eurobonds of a similar tenor”.

EUROBONDS INDICATORS

24/09/21 17/09/21 31/12/20 Total tradable size $m 32,364 32,364 32,364 o.w.: Sovereign bonds 31,314 31,314 31,314 Average Yield 72% 74% 57% ⬌ Average Life 6.40 6.43 7.04 ⬌⬇ Yield on US 5-year note 0.95% 0.87% 0.37% ⬇ ⬆

Source: Bank Audi’s Group Research Department

Week 39 September 20 - September 26, 2021 11 SEPTEMBER 20 - SEPTEMBER 26, 2021 WEEK 39

INTERNATIONAL MARKET INDICATORS

Weekly Year-to-date 24-Sep-21 17-Sep-21 31-Dec-20 change change EXCHANGE RATES YEN/$ 110.74 109.99 103.32 0.7% 7.2% $/£ 1.368 1.374 1.367 -0.5% 0.1% $/Euro 1.172 1.173 1.222 0.0% -4.1% STOCK INDICES DOW JONES INDUSTRIAL 34,798.00 34,584.88 30,606.48 0.6% 13.7% AVERAGE S&P 500 4,455.48 4,432.99 3,756.07 0.5% 18.6% NASDAQ 15,047.70 15,043.97 12,888.28 0.0% 16.8% CAC 40 6,638.46 6,570.19 5,551.41 1.0% 19.6% Xetra Dax 15,531.75 15,490.17 13,718.78 0.3% 13.2% FT-SE 100 7,051.48 6,963.64 6,460.52 1.3% 9.1% NIKKEI 225 30,248.81 30,500.05 27,444.17 -0.8% 10.2% COMMODITIES (in US$) GOLD OUNCE 1,750.42 1,754.34 1,898.36 -0.2% -7.8% SILVER OUNCE 22.42 22.39 26.40 0.2% -15.1% BRENT CRUDE (per barrel) 78.09 75.34 51.80 3.7% 50.8% LEADING INTEREST RATES (%) 1-month Libor 0.09 0.08 0.14 0.00 -0.05 US Prime Rate 3.25 3.25 3.25 0.00 0.00 US Discount Rate 0.25 0.25 0.25 0.00 0.00 US 10-year Bond 1.45 1.36 0.91 0.09 0.54

Sources: Bloomberg, Bank Audi's Group Research Department

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