Small shareholders in Solidere mulling lawsuit against board on mismanagement grounds

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Beirut's central district which is owned by real estate giant Solidere. (Photo: Marwan Tahtah)

By: Mouhamad Wehbe

Published Tuesday, July 8, 2014

Solidere board members are making side profits from being part of companies that do business with Solidere, such as Bank Med and real estate developers, or subsidiary tourist enterprises established in a way that violates the laws related to the company’s scope of work. Small shareholders are disgruntled about this situation as well as the company’s financial results, and some plan to sue on mismanagement grounds.

Solidere insiders confirm that the company’s financial statements have intentionally overlooked the proposal by its board not to distribute dividends for 2013 profits. The insiders say that the board has used some figures to show a “rosy” picture and camouflage the company’s problems that have been there for years, and conceal the true financial priorities of the company, which only serve the interests of major shareholders that the board represents.

The members of the board share among themselves senior positions in companies created by Solidere, and are allowed to run companies that have a clear conflict of interest with Solidere itself, or work for banks that lend to Solidere.

Each year, Solidere’s board issues a special report asking the general assembly to give their consent for some board members to sit on the board of companies that have dealings with Solidere. This has since become “normal behavior” for the real estate giant, which was imposed on the Lebanese people in 1994 in order to seize Beirut’s central district. Meanwhile, the chairperson and members of the board represent the major shareholders in the general assembly, and control the majority of votes at the expense of the small shareholders.

Although small shareholders have been aware of the dubious benefits given to the major shareholders, they chose to keep mum as long as Solidere was distributing annual dividends. This was an incentive to continue to tout Solidere as a transparent company rather than a “bazaar” of corporate corruption. However, what happened in the most recent general assembly session, with the board deciding not to distribute dividends but only stocks, has caused outrage among small shareholders.

Subsequently, this group of shareholders has been trying to find a framework to consult one another and cooperate toward putting pressure on the board, with a view to compel it to distribute dividends, improve administrative performance, and reduce the rampant financial wastage in the company. Some small shareholders have, to their own disbelief, found out that the board had not distributed the shares it promised to distribute last year, and that it will not distribute any dividends for 2013, even in the form of stocks.

The results of the last general assembly prompted some small shareholders to begin talks to sue the board for bad management. The small shareholders continue to mull this course of action, especially after the board suggested recycling earnings instead of distributing dividends among shareholders.

According to shareholders who are closely following the issue, a lawsuit of this kind against the board would be the first of its kind, and it would have adverse effects on real estate prices in Beirut and Solidere’s stock prices.

In the meantime, some small shareholders do not deny knowing about the dubious benefits given to Solidere board members, mentioned in the special report addressed to the general assembly, but say that none of them have the numerical ability to stop the prior consent given to them. The following is a breakdown of these benefits and the beneficiaries:

  • Solidere deals with BankMed S.A.L. and BankMed Suisse S.A. through both current accounts and deposit accounts, in addition to other banking transactions. Solidere board member Bassil Yared sits on the boards of both banks.
  • The allowances for the presence of the chairperson of the board and board members for the year ending on December 31, 2013 amounted to $300,000. The board decided to waive the allowances for 2014, also $300,000, in line with the policy to cut spending and reduce general expenses in light of the company’s difficult circumstances. (According to small shareholders, this is a drop in the bucket compared to their other benefits, however; they also wonder why they had not waived the allocations for 2013).
  • The fees of board member Maher Beydoun, who is retained as a consultant for corporate relations, were $192,000 for 2013.
  • Board member Raphael Sabbagha sits on the board of the Beirut Waterfront Development Company, a Lebanese joint-stock company in which Solidere has a 50 percent stake. In 2005, Solidere sold properties nos. 1455 and 1456 in Minet al-Hosn for a total of $31.6 million; $6.4 million were paid in the form of stocks equivalent to a 50 percent stake in the company, after its capital was increased to $12.8 million. The outstanding amount of $25.2 million was written down as a loan with interest due in 2011, as a LIBOR interest rate plus 2 percent per annum, providing that the total does not drop below 9 percent per annum. Accumulated interests due up to June 30, 2011 were added to the principal loan amount, with the total becoming $36.54 million. The loan was extended for an additional five years under the same conditions. On December 31, 2013, unpaid applicable interest costs were to the tune of $8.2 million.
  • In 2010, Solidere established a number of companies to manage and operate its tourist activities. A number of Solidere board members sit on the boards of these companies, as follows:

-The Beirut Hospitality Holding Company, a wholly owned subsidiary of Solidere, with a debit balance of $5,300,046. Joseph Esseili is the chairman of the board, while Maher -Beydoun is a board member.
-BHC1, a company wholly owned by Solidere. The debit balance is $4,176,297. Maher Beydoun serves as chairman of the board.
-BHC3, a company wholly owned by Solidere. The debit balance is $272,873. Munir Douaidy serves as its chairman of the board.
-BHC4, a company wholly owned by Solidere. The debit balance $356,886.
-BHC5, a company wholly owned by Solidere. The debit balance is $4,701,548. Munir Douaidy serves as its chairman of the board.
-MATS, a company in which the Beirut Hospitality Holding Company owns 80 percent of the shares. The debit balance is $ 3,658,274. Joseph Esseili serves as the chairman of the board.

The Solidere board members named above serve as chairmen or board members in companies involved in real estate development as well, which have activities similar to Solidere’s scope of work, while there is no agreement, direct or indirect, between them and Solidere. These members include: Maher Daouk at Al-Manara Real Estate, 138 Mraisseh, and Thamarat; Joseph Esseili at Asselco Holding and Mecada; Raphael Sabbagha at the Rmeil 1781 company; and Osama Qabbani in the Millenium Development company.

This article is an edited translation from the Arabic Edition.

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