Solidere shares fall in aftermath of Hariri assassination

SHARES in Solidere, Lebanon’s largest company, fell by 15% last week after local markets reopened for the first time since the assassination of the company’s founder and the country’s former prime minister Rafik Hariri.

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By  Rhys Jones Published  February 27, 2005

SHARES in Solidere, Lebanon’s largest company, fell by 15% last week after local markets reopened for the first time since the assassination of the company’s founder and the country’s former prime minister Rafik Hariri. Over the last week Solidere has edged around the US$8 mark on the Beirut Stock Exchange (BSE), where it represents some 65% of the volume of trading. The company’s capital is valued at around US$1.6 billion. Hariri, the largest single shareholder, set up Solidere in the early 1990s to rebuild the heart of downtown Beirut, which was completely devastated at the end of the 1975-1990 civil war. Solidere stirred controversy at its outset when it expropriated much of downtown Beirut’s devastated properties from original landowners and compensated them with shares that plummeted below US$5 from a high of US$15 in 1997. Critics had accused Hariri of using Lebanon’s post-war reconstruction drive for his personal financial gain. However, his assassination sent shock waves through Lebanon’s business community, which saw the billionaire tycoon as the country’s best hope for economic revival. “[The assassination] adds instability on the political and economic front,” said Philip Khoury, head of research at EFG-Hermes Securities in Giza, Egypt. “I expected the market to take a dive,” he added. The drop in the company’s share price could represent a short-term adjustment that could potentially spawn increased investment in both the company and the country at large. “We are entering an unknown period, \we don’t know what’s there for us yet,” said Raja Makarem, managing partner of Lebanon’s Ramco Real Estate Advisors. “It’s normal that any serious investor would want to watch and see what happens in the next few weeks,” he added. But Makarem voiced confidence in Solidere, which, after completing restoration of much of the historic city centre, is now engaged in its second phase that is expected to see a new financial district and city park built over a massive landfill off the Mediterranean coast. “Today thousands will follow up with \the determination of Hariri to rebuild Lebanon and put it on the right track,” he \said. “His children seem to be very qualified to carry on. I think the unity of \Lebanon now is more important than anything happening in the last months and years. This will give confidence to tourism and investors.” Solidere was scheduled to be listed on \the Kuwaiti Stock Exchange (KSE) at \the end of February, the first Lebanese \company to do so. With a market capitalisation of US$74 billion, the KSE is \the second-largest stock market in the \Arab world after Saudi Arabia. It has \127 listed companies, 12 of which are non-Kuwaiti. The move was aimed to attract further investment into Beirut Central District (BCD). When approached by Arabian Business, Solidere said the company would withhold comment on the move until next week. Solidere posted a profit of US$12.5 million in the first half of 2004, up by 114% over the same period in 2003. The real estate giant listed its stocks on the BSE in September 1996 with an opening price of US$113.5 for A shares and $116 for B. But the company split the stocks 10 to one in 1997. In additon, the annual cost of insuring US$10 million of Lebanon’s debt over five years through using credit-default swaps rose US$100,000 to US$420,000 compared with a week ago, according to prices at Shuaa Capital in Dubai. There has been almost no trading of Lebanon’s US$650 million of bonds maturing in 2009, said Rabih Sultani, a Shuaa fund manager who helps oversee the investment bank’s US$800 million of emerging market assets. The premium over government debt investors demand to hold the bonds, which were sold in 1999, is about 370 basis points. A basis point is 0.01 percentage point. “Most of the bonds are held by local Lebanese institutions,’” said Sultani. “I don’t expect much trading volume or change in price unless there is an escalation of unrest,” he added. Meanwhile, the Lebanese pound, which has been stable for the past 12 years, traded at an average price of 1507.5 to the dollar, the same average as the day of Hariri’s assassination. In a bid to allay fears of uncertainty, the Central Bank of Lebanon has pledged to maintain the stability of the Lebanese pound and interest rates, as well as to insure liquidity. See news section for story on Lebanon's troubled economy.

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