16 August 2023
I proposed the creation of a Sovereign Wealth Fund managing the State’s assets and ownership in mid-December 2019 in An Nahar’s columns[1] as per the advice of Dr Fouad Abou Nader: « In 1967, the Lebanese Parliament passed the “Intra Law,” which set down new rules and procedures in the event of bank failures in order to prevent outright bankruptcy and liquidation. Indeed, in 1966, Intra Bank was forced to suspend payments in the wake of a run on the bank that depleted its cash reserves. Intra had only a few large depositors, limited cash reserves and long-term investments in property. This law allowed the restructuring of Intra rather than its pure liquidation: the deposit obligations were replaced with shares in a new financial institution, Intra Investment Company. A similar law could be drafted in order to restructure the debt of Lebanon. The debt held by banks must be swapped with shares of a newly established sovereign fund that comprises: Middle East Airlines (MEA); Touch and Alfa (the two mobile operators); Casino du Liban; 20% of the future oil & gas revenues of the two blocs awarded for exploration to Total, ENI, and Novatek; Electricity & Water management. 75% of deposits above $1 million would be converted to equity in these banks. The new sovereign fund and all Alpha Banks could then be listed on international stock markets including New York, London, Frankfurt, Shanghai, Hong Kong, and Singapore stock exchanges (even if they have to start by secondary markets). »
Immediately after publishing my article[2], I discussed it with Alain Bifani then Director General of the Ministry of Finance. End April 2020, President Michel Aoun and the Council of Ministers approved the recovery plan drafted mainly by Lazard Bank and the ministry of Finance. The plan took over my proposal as it touched on the creation of a Public Asset Management Company (PAMC) for holding the key government assets (stakes in companies and in real estate) and the creation of a Sovereign Wealth Fund (SWF) for managing the oil and gas assets and investing outside Lebanon. I wrote then a new article in these columns[3]: « A law could be drafted to restructure Lebanon’s debt. Part of the debt held by banks must be swapped with shares of a newly established sovereign wealth fund (SWF) – structured and managed like a private company in order to generate value that couldn’t be created till now – that comprises: - Middle East Airlines (MEA) valued by Central Bank Governor Riad Salameh at $1 billion[4]; - Ogero (telecom landlines) and Touch and Alfa (the two mobile operators) valued by consultancy group McKinsey between $4 billion and $10 billion[5]; - Lebanon’s stake in the future oil and gas revenues of the two blocs awarded for exploration to Total, ENI, and Novatek[6]; - Electricity (Électricité du Liban, EDL) and Water management as well as the future revenues from cannabis for medical use (including the development of the processing industry and a commercial framework); - The potential funds awarded by the International Monetary Fund (IMF) and others; - Stakes of the State or Central Bank (Banque du Liban, BdL) in Casino du Liban; Régie des Tabacs et Tombacs; the Beirut, Tripoli, Sidon, and Tyre ports; the Rashid Karami International Fair; the Sport City Center; the real estate development institution Elyssar; in the airports of Koleiat (tourism), Hamate (Private and luxurious planes) and Rayak (fret); and in Intra Investment Company and its banking arm Finance Bank. »
Later, in January 2021, as a response to the call of the Association of Banks of Lebanon (ABL) and others to privatize the assets of the State (including the sale of the gold held by BdL, the real estate of the State and the seaboard of the country) as an alternative plan, Albert Kostanian assessed the value of the assets of the State[7], and I made a comment on his study[8].
In May 2020, Gebran Bassil also started to call for the creation of a sovereign investment trust fund holding part of the assets of the State and in which depositors would have the possibility of investing and thus generating profits. He said that this would activate the Beirut stock exchange. On the 1st of August 2023 and on the 8th of August t2023, he called again for the creation of a trust fund which “would preserve the State's assets and ownership while they would be managed by the private sector, which would allow for improving the State's revenues, covering some of the financial gap and returning funds to depositors”.
Dr Fouad Abou Nader also wrote that we must create a public asset management company to manage the assets of the State and a sovereign wealth fund to reinvest future oil and gas revenues[9]. On July 31, 2023, he reiterated it[10]. In his solution to the power sector crisis[11], he also mentioned that investment banker and energy finance expert Carol Ayat developed my swap and listing ideas in her proposal to improve the energy and the power sector of Lebanon and applied them to that sector[12].
In my second article in these columns, thanks to my debate with Michel Nehme (the managing partner of Cedrus Consult), I exposed challenges: « State and BdL are separate entities. This distinction is important to keep in order to avoid claims by Eurobond holders. A legal opinion should be requested by the Government[13]. Another challenge is that the State’s assets belong to all the Lebanese citizens, not just to bank depositors (Lebanese and non-Lebanese). One of the remedies for discrimination is future compensation to be determined later. » I also stressed that it is not the solution but part of a global plan like the one developed by Lazard and the ministry of Finance.
I also wrote that the listings I proposed “will also force transparency”: « This, in turn, would bring back credibility and confidence in the new Lebanese banking system. Especially for the Lebanese diaspora and the international financial markets. Through listing, the new SWF would then be able to raise funds. This new SWF could invest along with the Lebanese entrepreneurs in Lebanon and worldwide in order to generate revenues, profits and growth. »
I warned that « we need the right people, both competent and honest, to lead this new SWF »: « We cannot permit incompetent, corrupted and disingenuous people to squander the last jewels of the country. »
At a time when political leaders from different sides like Dr Fouad Abou Nader and Gebran Bassil are calling for it, it is important to know its challenges, to discuss its implementation with financial and legal experts and execute it as part of a global reform plan which would include the restructuring of the public (BdL) and private (commercial banks) banking sectors, the write-off of the capital of the banks and the wipe-out of their shareholders, the bail-in by big depositors, the obligation to approve the budget, the amendment of the banking secrecy law as requested by the IMF, a legislation regulating withdrawals and transfers (“capital control” ) approved by the IMF, an unification of the conversion rate and then a free conversion change, a forensic audit of the BdL, ministries, state bodies created after the war, the administration services and the 14 largest banks in order to recover the stolen money, etc.
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Michel Fayad is a civil society activist and financial analyst with experience in policy making, global strategy, and business development. He graduated from HEC Paris School of Management, the London School of Economics & Political Science and NYU Stern School of Business.
[1] https://www.annahar.com/english/article/1085920-a-proposal-to-restructure-lebanons-debt.
[2] I received positive messages from Dan Azzi and Francois Bacha, my tweet sharing it got likes from Albert Kostanian and Lea Fayad and Raoul Nehme (then Executive General Manager of Bankmed) who became a few weeks after minister of Economy & Trade (and called for a forensic audit during a meeting of the Council of Ministers: https://www.ft.com/content/bc16f282-2874-4e0b-acec-84119b61044f) welcomed it.
[3] https://www.annahar.com/english/article/1180597-how-a-swf-might-help-lebanon-navigate-through-an-unprecedented-crisis.
[4] https://www.zawya.com/mena/en/business/story/Lebanons_PM_unveils_airport_expansion_initiative-SNG_102671258/.
[5] https://www.economy.gov.lb/media/11893/20181022-1228full-report-en.pdf.
[6] As per the Offshore Petroleum Law which stated in its Article 3 the establishment of a Lebanese SWF.
[7] https://www.aub.edu.lb/ifi/Documents/publications/research_reports/2020-2021/20210222_Privatization_of_Lebanon_Public_Assets_Research_Report.pdf.
[8] https://libnanews.com/biens-publics-eclairage-grace-a-letude-dalbert-kostanian-et-analyse-dans-le-cadre-dune-solution-globale-a-la-crise/.
[9] https://www.lepoint.fr/debats/fouad-abou-nader-sortir-le-liban-de-la-crise-financiere-28-08-2021-2440464_2.php.
[10] https://www.nidaalwatan.com/article/192974 and https://libnanews.com/vous-ne-volerez-pas-nos-enfants/.
[11] https://www.lorientlejour.com/article/1297486/une-solution-a-la-crise-de-lelectricite-au-liban.html.
[12] https://www.aub.edu.lb/ifi/Documents/publications/research_reports/2020-2021/20211020_comprehensive_solution_to_the_lebanese_electricity_sector_report_pdf.pdf.
[13] I recommend reading this text: https://www.lawfareblog.com/sovereign-immunity-foreign-central-bank-assets.