austynallison

Star turn

In Journalism, Published journalism on November 23, 2010 at 6:03 pm

The fall and rise of Lebanon’s only English-language daily newspaper

By Austyn Allison and Nathalie Bontems

Originally published in Communicate, April 2009

The Daily Star is up and running again, after the Beirut-based newspaper almost closed for good in January. The Star’s publisher, editor and CEO, Jamal Mroue, tells Communicate that the return to print signifies the latest chapter of a “saga” that began around 10 years ago when one bank bought another.

In 1999, Standard Chartered Bank agreed to buy 89 percent of the share capital of Metropolitan Bank of Lebanon. Among the customers it acquired with Metropolitan was The Daily Star, which was three years into a comeback and running a $500,000 overdraft. Despite this debt the title was expanding and appeared to have a sound financial future ahead of it.

In 2001, Mroue signed a deal with the International Herald Tribune to create a partnership that would help extend the Star throughout the Middle East. In 2003, the Star launched editions in Egypt, Kuwait and Qatar, with international content provided by the IHT, regional content provided by the Star out of Beirut, and localized copy coming from partnerships with local news organizations, including Al Watan in Kuwait, and Al Sharq in Qatar.

Advertising revenue hit a slump for newspapers worldwide, though, in the wake of 2001’s September 11 attacks on the World Trade Center in New York, and Mroue’s Star was no exception. It needed to borrow further funds to support its regional expansion.

PAYBACK TIME. In 2003, Standard Chartered Bank decided to call in its loan to the paper. At this point, that loan was worth around $1.2 million. In court, the Star agreed to pay Standard Chartered $640,000, and also asked the bank to drop the interest rates on the remaining credit. To date, says Mroue, the bank has not provided a balance sheet on the loan, so he is unsure how high the interest rate is. He maintains that it is high, however, and that the bank refuses to reduce it.
The Daily Star didn’t pay the remainder of its debt to the bank, although Standard Chartered continued to hold two tracts of Mroue’s land – one in Beirut, and the other in the southern Lebanese city of Sidon – as well as two partial tracts as collateral against the debt.

In 2005, Mroue moved the Star’s current account to another bank, Blom Bank, but maintained its debt with Standard Chartered.
The fragile Lebanese economy, meanwhile, was becoming shakier as Parliament voted to extend the term of pro-Syrian president Émile Lahoud in 2004. And in 2005, the one-time prime minister Rafic Hariri was assassinated, sparking violence in the streets of Beirut and beyond.

GROWING IN THE GULF. Still, Mroue continued drawing up expansion plans for the Daily Star. By 2006, he was in the final stages of negotiations to take the Star into the UAE and Saudi Arabia. King Abdullah had given the green light to a planned partnership with Al Watan daily in Saudi Arabia, and in the UAE negotiations were under way with Abu Dhabi’s Al Ittihad paper, whose sister title, The National, launched last April.

That publication might have been under the wing of The Daily Star, had it not been for Israel’s war against Lebanon’s Hezbollah in 2006. “The flimsy economic floorboards we were standing on just collapsed,” says Mroue. The Star closed its Kuwaiti, Qatari and Egyptian editions, shelved its UAE and Saudi Arabia expansion plans, and retrenched, cutting back on expenses and staff, and downsizing to become a regional paper for Lebanon once more.

Standard Chartered Bank remained inflexible on its terms of credit, says Mroue, meaning his paper could not afford to continue its expansion. He says the long period of turmoil between 2005 and 2008 – resulting in a total of 450 days of economic stasis and no advertising – was the main reason The Daily Star’s revenue shrank to next to nothing over that period.

Negotiations continued with the bank, though, to find a way to eliminate the debt and to put the brakes on its rising interest.
Last June, the Lebanese courts informed Mroue that Standard Chartered Bank had arranged a bankruptcy trial, to take place on Jan. 14, 2009. The Star began preparing an appeal, in case it lost. At the same time, Jamil Mroue’s brother Kareem visited Standard Chartered’s manager in Beirut. He made the bank an offer: Take the land it held in lien, sell it, write off the Star’s debt – which now came to $791,000. By Jamil Mroue’s calculations, the sale of the land at market prices would cover the debt and generate an extra $300,000 to $400,000 profit for the bank. Standard Chartered, says Mroue, didn’t respond to the offer.

COURT SHORT. On January 14, the case came to court. At 1.30pm the judge declared The Daily Star formally under bankruptcy proceedings, and by 3.00pm, court officers were at the newspaper’s offices. They ordered the Star’s employees to go home, then sealed the building. For the next two weeks the only person on the premises was a security guard.

Mroue says he was astounded by the speed at which the offices were closed, but refuses to speculate in public over why the court acted so quickly in a region not best known for its bureaucratic efficiency. Conspiracy theories, he says, are a waste of time.

“Neither in banking terms nor in procedural terms does this make sense,” says Mroue. Apart from the atypical speed of the court’s action, he says, the numbers don’t add up. The bank stood to gain little from bankrupting the Star, compared to the money it would recoup from selling its publisher’s land.

Under Lebanese law, when a firm is declared bankrupt, it must settle its debts in order: First, employees are paid; second, any outstanding taxes must be paid to the government; thirdly, legal fees must be settled. Only then can the bankrupt company begin paying its creditors. Mroue says that as well as the $791,000 The Daily Star owed Standard Chartered, it also owed other creditors around $380,000 for day-to-day operational costs such as newsprint and office supplies. And the paper owed Mroue a personal debt of $1.4 million, which he has lent it over the course of the past 14 years. (He says he has invested between $3.5 million and $5 million over all.)

To recoup this money, court-appointed receivers would sell off Mroue’s land and the newspaper’s assets. Since the Star operates from rented offices, its corporate wealth consists of little more than the computers and office furniture in its premises. The funds that are left once a company’s belongings have been sold off are then, under the law, apportioned depending on what percentage of its total debt each debtor is owed.

Mroue reckons the remaining funds would come to around $1.5 million. Once this was apportioned out, the bank would expect to receive a little less than half the $791,000 owed to it by the Star. “Now here is where I smell a rat,” says Mroue, “and I don’t know what gender or genus of smell this is.”

“WE’RE BACK.” Dodgy dealings or no, though, The Daily Star is back on newsstands and on the Internet. On Feb. 2, a 300-word article appeared on the newspaper’s Web site, the first update since the court case. “We’re back,” declared the headline. The court ruled that the bank’s claim to the $791,000 was legitimate, but that a further $1.1 million in claimed interest was “doubtful,” says Mroue.

Through external investment the original debt was finally settled, but the legitimacy of the interest sum seems unlikely to be decided by the court, and the Star is still trying to come to an agreement with the bank. The newspaper’s lawyers proposed a settlement of a little under half the claimed balance, says Mroue. The bank refused the offer, but is now taking an interest in the land it holds, saying it will take a tract of land in Lebanon’s mountains as payment.

The publisher is reluctant to sign over the land, however. “I don’t want to; this is my land. Why should I give it to them?” he says.
Mroue is also skeptical of the bank’s motivations in wanting the land, hinting that there might be a more-than-financial motivation. The bank’s primary prerogative, he argues, is to get its money, as it is a financial institution. So when he went to the bank with an offer to pay them around $500,000 to cancel his debt, the bank should have either accepted the offer or demanded more money. Instead, it asked for one of the tracts of land, in the Lebanese mountainside, in lieu of payment. The land, says Mroue, is worth around $600,000 at current market prices, nowhere near the $1.1 million the bank is looking for in settlement.
If Standard Chartered were prepared to settle the Star’s debt for $600,000, then why did they not just ask Mroue to up his offer when he posited a figure of $500,000? The publisher darkly suggests there might be an inside interest at the bank, some involved party who wants to get his hands on the mountain plot. He will not speculate on who it might be, however. Standard Chartered Bank failed to provide any comment for Communicate.

LAND IN LIMBO. The land, in the meantime, hangs in limbo. Mroue owns it, yet the bank holds the deeds in lien. Standard Chartered insists The Daily Star owes it $1.1 million, and it will not release the land until that is paid. The courts are unconvinced of the bank’s claims, but not convinced enough of the sum’s illegitimacy to force the bank to give up its claim. Mroue’s implication is that Lebanon’s legal system has effectively washed its hands of the dispute between The Daily Star and Standard Chartered Bank. “It is Kafkaesque-meets-Catch-22,” he says.

New investors – Mroue won’t yet say who – have paid for the bail-out of the $791,000 that the Star originally owed the bank. Even as it continues its struggle with Standard Chartered, the paper is getting back to work.

The Star is not out of the woods yet, though. If times were tough when it was in circulation, things got even tougher while it was off the market. The start of the year – when marketers are setting their advertising budgets – is not a good time to drop from the top of media planners’ minds. At the onset of a recession, it is even worse.

At the time, advertisers didn’t know if the Star could be shut down again even if it did relaunch, says Jamale Rassi, the general manager of Adline, which has been the newspaper’s sales representative for the last five years. Now the paper is back in circulation Adline has pulled some advertising back in. Spend from advertisers has dropped by 50 percent, though, and some are still unaware the Star is back. Adline has put together a 20-second television commercial to tell people the star has returned, as well as writing to advertisers to remind them.

The paper needs to change, says Rassi, and it has needed to for some time. For six months she has been working on ways to modernize the Star, and even brought in a consultant to design a new tabloid layout for the title. Quality of content is not a problem, she insists, but delivery is. Readability must be improved and, she says, “We need to create a community of readers around the Star.”

LOST IN TRANSLATION. The paper’s status as the only English-language daily in Lebanon is its unique selling point, but it is also a disadvantage in a predominantly Arabic speaking country. While the paper’s staff has been cut over the past three years to a level where those remaining struggle to cope with their workload, the Star still spends a lot of money on translation. The end result, says Rassi, is that The Daily Star has higher running costs than an Arabic paper, but has a lower circulation than its Arabic counterparts.

Although Adline’s contract to sell space in the Star is up for renewal at the end of this year, Rassi says she has faith in Mroue as an editor. And also in the paper as an institution. In recent years, Adline has repeatedly offered to buy the Star, but the two partners never came to a deal.

The new investors who have now bought shares in the Star have untied the newspaper from its overdraft. At the same time as fighting the bank over that $1.1 million, Mroue says, he is looking to the future, and intends to change the way the paper works.
“Think Web and produce newspaper,” is the publisher-editor’s mantra. The way newspapers are generally run, he says, is that news is gathered in a print-friendly format – which generates revenue – then modified for inclusion on the Internet – where it will have more reach. The new-look Daily Star intends to invert that process by gathering news for the Web, then tweaking it appropriately for inclusion in a print newspaper.

Readers of the newspaper – and visitors to the Web site – will see changes before the summer, says Mroue. Although proposals have been sketched, no concrete game plan has yet been laid out.

The Daily Star has survived another near-death experience, though. In typically Lebanese fashion, it has weathered storms of financial hardship, convoluted politics and some dubious conspiracy theories. And although there may be grey skies and tough times still ahead, it looks like – for now at least – the Star continues to shine.

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