Beirut Blast Blows Dark Cloud Over Local Real-Estate Bellwether

(Bloomberg) --

Until last week, flagship Lebanese property company Solidere had been a bright spot for investors looking to protect their money as the country’s finances slid into meltdown. The massive explosion that wrecked swathes of Beirut real estate suddenly changed much of that.

Solidere was set up in 1994 to redevelop the heart of the Lebanese capital, ravaged by civil war. Much of the construction it carried out has suffered massive damage, devastated by the Aug. 4 blast in the city’s port that killed more than 170 people.

“The scale of the damage in Beirut is humongous and catastrophic,” said Nabil Al Rantisi, the managing director of wealth management at Daman Investments in Dubai. “Solidere is a real estate company that lives off development and rental. With no business activities in these areas, they’re not going to receive payments. That is going to continue for a while.”

Solidere, which had a market value of about $2.3 billion as of Wednesday, is the most liquid stock traded in Lebanon and viewed as a proxy for politics in the country. Since the worsening of the economic and financial crisis, with escalating inflation and limits on deposit withdrawals, many investors turned to its U.S. dollar-denominated shares as a haven. That sent the stock surging more than 150% since early October.

A spokesman for Solidere wasn’t immediately able to comment.

The company was founded by former Prime Minister Rafik Hariri, who made a construction fortune by rebuilding palaces for the Saudi royal family. The family of the billionaire businessman, killed in a bombing in Beirut’s seafront hotel district in 2005, was the majority shareholder of Solidere at the time of his death. His son, Saad Hariri, resigned as prime minister in October after anti-government protests escalated.

Solidere was tasked with rebuilding 1.8 million square meters (19 million square feet) of central Beirut, where rival Christian and Muslim militiamen battled each other during the 1975-1990 conflict. The rehabilitated downtown area became a tourist attraction, with high-end shops replacing the city’s historic market. It’s also home to the parliament, a frequent target for protesters.

“To a certain extent, they rebuilt a very luxurious and handsome city center,” said Hannes Baumann, author of the book “Citizen Hariri: Lebanon’s Neoliberal Reconstruction” and a senior lecturer at the University of Liverpool. “But of course, that came with a lot of criticism, such as that it completely changed the social structure of the region, that it was aimed mostly at high-earning individuals rather than the citizens themselves.”

Damage to Beirut from the deadly explosion is estimated to run as high as $15 billion, while pledges of emergency assistance for Lebanon have yielded about $300 million so far. On Monday, the government resigned as loud protesters occupied the center of the capital.

Any optimism around the stock may be hard to sustain because of the bleak outlook for the country. “I don’t think anyone will make any substantial investment in Lebanon before they see a lot of political stability and actual political change, and not the same faces in different suits,” said Al Rantisi, from Daman Investments. Solidere fell 2.6% as of 11:44 a.m. in Beirut, erasing its gains on the first two days of this week.

Baumann of Liverpool University sees some sharp contrasts between the atmosphere post-1990 and now.

“The reconstruction after the civil war happened by putting a single developer, Solidere, in charge,” he said. “Now, when you look at social media, people are getting organized to put efforts into reconstruction themselves. They are cleaning up, they are getting rid of debris and are trying to do as much as they can.”

Here’s some more context on Solidere:

• When it became public in the late 1990s, the shares were initially reserved for Lebanese nationals and people of Lebanese origin
• Lebanese retail investors, banks and institutions still owned 89% of the company as of December
• It had about $2.2 billion in assets, with inventory of land and projects in progress totaling $1.1 billion by the end of last year
• It raised about $360 million from the start of 2019 until February of this year by selling land
• Solidere’s stake in the Beirut Waterfront Development alone, which combines residential, commercial and entertainment venues close to the Mediterranean shore, was valued by the company at around $165 million as of the end of 2019

©2020 Bloomberg L.P.