Behind the scenes: why a Lebanese bank chose to invest in Hollywood movies

Behind the scenes: why a Lebanese bank chose to invest in Hollywood movies
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Published August 26th, 2013 - 08:56 GMT via

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"What most people don’t know is that most movies recoup their capital. A few lose money, but a few make a lot of money. The question is hitting the ones that make a lot of money,” said Khabbaz from FFA private bank.
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 Beirut has been a backdrop for war and terrorism in countless American movies, but one Lebanese investment bank, FFA Private Bank, has been working behind the scenes for the past two years to put the country on the map as a different sort of cinematic destination by co-financing two major Hollywood films. The first of FFA’s film forays, “2 Guns,” an $84-million blockbuster starring Denzel Washington and Mark Wahlberg, premiered in the Middle East last week after reaching No. 1 on the U.S. box office charts in its opening weekend in August.

The head of investment banking at FFA, Julien Khabbaz, agreed to take an equity stake of nearly 40 percent in “2 Guns” in 2011, making FFA the film’s largest shareholders, and he expects the approximately 40 investors who participated in the private placement to receive annual returns of about 20 percent. The second film, an animated adaptation of Gibran Khalil Gibran’s “The Prophet,” is in production and will premiere next year at the Cannes Film Festival.

Abu Dhabi, Dubai and Qatar have all set up state-run film financing arms since major Hollywood production studios began drastically cutting the number of new films they finance in 2008, but FFA private bank was one of the first institutional investors in the Middle East to try its luck in the movie business when Khabbaz was approached about “The Prophet” in 2010.

“A couple of years ago, by chance, I was sent an email from a friend from overseas who said we have this interesting opportunity,” Khabbaz told The Daily Star last week. “I start looking at it and I’m thinking, ‘This is crazy. Movies. Who would invest in that?’ Obviously having no clue that this is a valuable asset class. So we start researching. In the U.S. big movies get funded by either big studios, institutional investors or major funds. Obviously, the perception is that it is a very risky investment, and it is risky in a sense, but what most people don’t know is that most movies recoup their capital. A few lose money, but a few make a lot of money. The question is hitting the ones that make a lot of money.”

Putting up just under $15 million as the majority financer of “The Prophet” was an easy decision for FFA, Khabbaz said, because the project not only boasted a cultural connection that would resonate with investors, but had also locked in a good foreign and domestic distributor and producers. “The book has sold 100 million copies world wide. [Gibran is] the third widest read poet in history, and obviously it helps that he’s Lebanese as well because investors felt a kind of pride or patriotic duty, but its not just that,” Khabbaz said. “First and foremost this is not a sponsorship deal or a donation, so we looked at what the budget is, what the potential returns are, how much profit we can generate for our clients, and we decided that this was really a unique opportunity given the history of the book and how many copies it sold.”

Movies are just one of the many off-the-beaten track asset classes that FFA has ventured into since it was granted a specialized license to become Lebanon’s first private investment bank in 2007. FFA has structured private equity deals in Lebanon and locations as far-flung as Khazakstan, India, Bangladesh and Nigeria since then, and currently has about 5,000 clients and assets valued at just under $1 billion, in addition to a separate real estate development arm, Khabbaz said.

Despite the negative economic and security situation, FFA Real Estate is currently managing the development of a $40 million project to build a wellness center at the Naas Springs in Lebanon. It also launched a luxury residential development in Amchit earlier this year, which Khabbaz said was selling well because it was a niche product that doesn’t exist anywhere else in the Lebanese property market.

“If you want to buy something on the sea you have very [few] choice[s]. You either buy a plot of land on the beach and spend a fortune to buy a house or you buy a chalet that has been there since the 1980s,” Khabbaz said. “Obviously the real estate sector has had a slowdown, but it’s not something disastrous. It was growing too fast and now it’s just growing nicely I think. There’s no scenario where you’ve had people going bankrupt or developers stopping projects or sales completely stopping. It’s not that bad. There will always be people who need to buy properties. Now it’s become a question of niche product. If you’re still building 500 square meters in prime areas you’re going to have to wait to sell these. But that doesn’t mean there are not clients who are still looking to buy houses.”

Next on the private equity horizon for FFA is a $6 million capital raise to fund the expansion of W Motors, the Lebanese-designed luxury company that unveiled the prototype of the $3.4 million, limited edition “supercar” earlier this year. “That’s an investment we’re super excited about, one because it’s the first Arab company developing sports cars and two because the investment itself is very promising,” Khabbaz said. “Ralph [Debbas, the founder and Chairman of W Motors] is doing something no one ever dreamed of. The clientele for that kind of car, we’re talking collectors from all over the world.”

The seven supercars are in production now, Khabbaz said, and will be shown at the Dubai Motor Show in November for the first time. The $6 million will fund the construction of a W Motors manufacturing plant in the UAE. “It’s not a big amount, but it’s one of those stories we really wanted to be part of and we think there will be tremendous returns,” he said. “We try to do stuff that is different, whether it is the movie or supercars or exotic locations.”


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