S&P considers removing stocks of Lebanon's largest companies from indexes

Shares of the country's top three lenders and largest property developer could be removed from the company's Emerging Markets and Pan Arab indexes

Residential and commercial buildings stand along the waterfront corniche in Beirut, Lebanon, on Tuesday, July 24, 2018. Lebanons banks are paying the highest interest rates on deposits in almost nine years as lenders seek to shore up their capital to cope with political uncertainty and the high borrowing needs of the government. Photographer: Sima Diab/Bloomberg via Getty Images

S&P Dow Jones Indices, the division of ratings agency S&P Global that creates stock market indexes, has launched a consultation exercise on removing Lebanese shares from several of its indexes as a result of the country's worst economic crisis in decades.

S&P DJI said that it already took some measures "to address ongoing market accessibility issues in Lebanon caused by the imposition of capital controls". It added that although it has been monitoring the situation, little progress has been made to address to problems caused by these controls.

"Given the situation in the country regarding foreign currency shortages and fund repatriation concerns, S&P DJI is proposing to remove index constituents domiciled in Lebanon from the S&P Pan Arab Indices," the company said in a statement announcing the consultation exercise on Friday.

"Additionally, S&P DJI is proposing to reclassify Lebanon from a frontier market to a stand-alone market, and consequently remove all constituents from the S&P Frontier BMI and related sub-indices."

Lebanon is enduring its worst economic crisis since the end of its last civil war in 1990. The country's economy contracted 25 per cent last year, according to the International Monetary Fund.

Although no formal capital controls have been announced, banks have placed strict limits on the amount of dollars that customers can withdraw amid a dollar shortage in the country.

Since the beginning of last year, the Lebanese pound has lost more than 90 per cent of its value against the US dollar. That led to rampant inflation, which soared to an annual 158 per cent in March.

S&P DJI said its consultation exercise will last until May 14 and that the removal of shares could take place at a forthcoming rebalancing of its indexes before markets reopening on June 21.

The removal of Lebanon-domiciled shares would affect four companies – Bank Audi, Blom Bank and Byblos Bank, the country largest lenders, as well as two classes of shares listed by property developer Solidere. Solidere is the largest publicly listed company on the Beirut Stock Exchange.

The Blom Stock Index that tracks the performance of the Beirut Stock Exchange has jumped in value by 40 per cent so far this year as those that can afford to, invest to hedge against the pound's plunge in value.