A Bourse Rises From The Ruins

For the first eight years of Lebanon's devastating civil war, the Beirut Stock Exchange kept on trading, right at the downtown heart of the Muslim-Christian battlefront. But as conditions worsened and economic activity ground to a halt, the bourse's doors closed in 1983. Now, after 12 years, the BSE is set to reopen on Sept. 25. Prime Minister Rafik Hariri's government hopes the revived market will tap new sources of capital that will help rebuild Lebanon, once called the Switzerland of the Mideast because so many rich Arabs parked their money there.

The possible return of Lebanon as a financial center has international investors excited. Lebanon was by far the most entrepreneurial of the Arab countries until the war crushed its economy. If their Syrian masters permit it, the Lebanese should be quick to cash in on the peace process and the new interest in free markets that is sweeping the Middle East.

SNOWBALLING VOLUME. The time seems ripe. Treasury bills and real estate, once the Lebanese investments of choice, have lost their luster as the Lebanese pound has weakened and property prices have soared. But investors are clearly eager. A recent $20 million private offering by Byblos Bank was oversubscribed by more than 50%. Two Eurobond issues have also surpassed projected sales, raising more than $400 million, and the bonds are trading above their offering price.

The bourse reopening will be low-key at first. While its bullet-shattered former home is rebuilt, traders will work from a single floor in a Beirut office building. Only five companies will be listed on the exchange, among them cement companies and probably Casino du Liban. Although the old casino is still in disrepair, the stock is expected to entice investors anticipating a tourist boom after reconstruction.

If all goes well, volume is expected to snowball. Dozens of companies are awaiting approval for listing. Five local investment firms have been cleared to operate on the bourse. Market capitalization could be $4 billion in a few months, bigger than Egypt's and almost matching Jordan's, according to some observers. By the end of 1996, computerization will allow continuous and remote trading, and by 1997, the market should be back in its old spot in the heart of downtown.

But don't call your broker yet. While exchange officials say they're ready to roll, a judicial body called the State Council has yet to approve the market's by-laws. They then need approval from the Council of Ministers. Trading may not start until early October.

Another question is Solidere, the $2.3 billion company created by Hariri in 1994 to rebuild Beirut. Government-inspired but privately owned, Solidere bought out landowners in the downtown area in exchange for shares in the company so it could get on with development. Some analysts fear that Solidere will dominate the fledgling index. It won't be listed at first, but officials say it will list within six months.

Lack of liquidity in the new market is another worry for big international players. Says Mark Mobius of the Templeton Emerging Markets Fund: "You have to invest where you can buy, and the volumes are just not there in the Middle East, except Israel." And a U.S. ban on travel to Lebanon continues to dampen foreign investors' spirits. The State Department is now reviewing the ban every six months, and Lebanese officials hope it will be lifted in 1996.

But changes are already in the works that could make Lebanon more appealing. A proposal to allow commercial banks to list shares worth 20% to 25% of their equity should breeze through Parliament. This would let Lebanese banks such as Banque Audi and Banque du Liban et d'Outre-mer raise millions in new capital, fueling new businesses. Lebanon has no capital gains tax and no limits on foreign investment.

The country's former colonial power, France, has helped get the bourse back on its feet with a $1.76 million grant. Among other things, the money paid for two technical experts who previously worked on establishing the stock markets of Prague and Ukraine. With support like that, Lebanese officials hope the market will help revive their country's reputation as the region's Switzerland.