The momentum behind Greece’s privatisation programme appears to be thawing as it tries to persuade its bailout creditors it is serious about selling off €50bn-worth of state assets. 

Although it has achieved little in the past five years, Greece’s privatisation programme is beginning to show signs of life. The Greek government appears to retain its distaste for selling state-owned assets, but it knows it must press ahead if it is to keep its bail-out programme on track and remain in the eurozone.

In 2011, as part of Greece’s original bail-out by the eurozone and the International Monetary Fund (IMF), the then socialist government said it would sell $50bn of assets by 2015. No one believed it at the time, and proceeds to date have totalled a mere $3bn. The sales have included gambling franchises and property but nothing that could be described as a major asset.

Yet the 'Troika' of the European Commission, the European Central Bank (ECB) and the IMF, which has been carrying out its latest review of Greek progress, insists on meaningful privatisation sales as well as tax and pension reforms as precursors to the next bail-out payment.

Upping the ante

Assets destined for disposal have been transferred to the Hellenic Republic Asset Development Fund (HRADF), which mandates advisers to find buyers. The IMF has said it would be realistic to assume privatisation revenues of about €500m a year over the next few years. However, HRADF chairman Stergios Pitsiorlas has told The Banker that his fund is targeting asset sales worth €2bn in 2016, rising to perhaps €2.5bn if all goes well. “This is a very important year for our fund,” he says.

Under the first Syriza government, privatisation in Greece froze, as sales were stonewalled or delayed by hard-left ministers. Since Syriza’s Alexis Tsipras was returned as prime minister in last September’s election, however, the ice has melted slightly. “It’s against their DNA to sell anything,” observes an Athens-based senior investment banker, who wished to remain anonymous. “But they have a gun at their head.”

Two controversial infrastructure sales are now close to completion, although they must still be signed off by the authorities, including parliament. Advised by Citi and EFG Eurobank, HRADF has signed a €1.23bn, 40-year concession with Germany’s Fraport to operate 14 regional Greek airports. The fund has also named China’s Cosco as its preferred bidder for a 51% stake, rising to 67% after five years, in Piraeus Port Authority. Cosco, which already operates two Piraeus terminals, will pay €368.5m for the shares (€280.5m in 2016) and invest another €350m in the harbour facilities. Now that they have the government’s reluctant blessing, both the port and airport deals are expected to close by the end of June, bankers say.

Stalled deals

Morgan Stanley and Piraeus Bank, financial advisers on the Piraeus port transaction, are also advising on the delayed sale of Thessaloniki port, now given more momentum by the Piraeus deal. Eight 'aggressive' bidders are in the ring, and bankers hope that the process can be concluded within the next four or five months.

A Thessaloniki port deal is certainly on Mr Pitsiorlas’s target list for the current year. So too is completion of the delayed €400m sale of the Astir Palace hotel and marina complex in Vouliagmeni to a Turkish-Arab property fund – though €300m will go to National Bank of Greece and only €100m to the state.

The state owns 55% of Athens International Airport, which operates the city’s new airport. Canada’s Public Sector Pension Investment Board (PSP) owns the other 45%. The sale of a 30% stake, carved out of the state holding, has been held up by an argument over how it should be privatised and when to renegotiate the concession agreement. Mr Pitsiorlas now says a 20-year concession extension will be negotiated before any sale. An initial public offering is an option but the consensus is that the stake will eventually go to PSP.

Among other stalled deals is Hellenikon, an ambitious redevelopment of the old Athens airport site. Lamda Development of Greece, backed by Chinese and Gulf interests, made a binding bid in 2014 and promised to invest €7bn in the project, before the government kicked the deal into the long grass. Now this too seems to be back on track.

“The Hellenikon transaction is going ahead,” says Makis Bikas, head of mergers and acquisitions at Piraeus Bank, which is advising the government alongside Citi. “I expect it will take a year to be finalised.”

Theodoros Giatrakos, Citi’s head of investment banking in Greece, sums up the change of mood. “Twelve months ago, Syriza was explicitly opposed to the majority of the privatisation programme,” he says. “But it has had the bravery to look at it pragmatically and to say, in certain cases, that the benefits outweigh the drawbacks.”

Bravery or fear?

There are plenty of cases where bravery remains notably absent. One of the largest and most politically sensitive assets, Public Power Corporation (PPC), the national power incumbent, remains firmly in the freezer. Early progress on the disposal of Admie, PPC’s independent transmission system, has come to a halt. 

Back in 2013, Russia’s Gazprom failed to make an anticipated €800m bid for a controlling stake in natural gas supplier Depa, after the EU warned it off, and the sale process has yet to be relaunched.

The HRADF owns 35% of Hellenic Petroleum, though its depressed share price makes this a bad time to sell. It also has 6% of the share capital and 10% of the voting rights in listed telecoms operator OTE. Deutsche Telekom already owns 40% of OTE’s shares. The Greek government would not sell more than 5% for contractual reasons, and this too requires a more buoyant equity market to support an acceptable price.

Mr Pitsiorlas is hopeful that national train operator TrainOSE and track maintenance company Rosco can be disposed of this year. The binding offer deadline for both has been pushed back to the end of May, at the request of bidders. They wanted to await the outcome of April's parliamentary votes on tax and pension reforms.

Vote hopes

Much rests on those votes and the subsequent outcome of talks between Athens and its lenders. Mr Tsipras appears determined to force through the reforms, but his wafer-thin majority in parliament makes them far from inevitable, and public resistance to further austerity means another general election is not out of the question.

Among the assets that look likely to one day be sold are the government stakes in Greece’s four systemic banks. These have not been transferred to HRADF. Instead, the plan is to move them and all other state assets into a new privatisation superfund, whose creation was to be subject to a parliamentary vote in April.

The European Bank for Reconstruction and Development (EBRD) is investing a total of €250m to become a shareholder in each of the four banks. This is the EBRD’s first transaction in Greece since it became a temporary country of operations in May 2015. The aim, the EBRD says, is to support the banks’ recapitalisation and facilitate their transfer into private ownership.

No one expects action on the bank stakes any time soon, though, and certainly not before the issue of their non-performing loans (NPL) has been addressed. Western investment bankers are reportedly swarming around Athens, hoping for mandates to find buyers for bad loans. At least one is said to have won its first commission, for a Greek corporate portfolio.

The Troika wants the Greek government to allow banks to sell all types of NPLs to investors, so that they can start making new loans. However, at the time of writing there were still legal restrictions on selling household mortgages or small business loans.

“If there is no solution to the NPL issue, the banks will be faced with the prospect of a fourth recapitalisation, and no one wants that,” says Anastasios Thanopoulos, Morgan Stanley’s country head of Greece. If the banks can sell on some of the NPLs and take the associated losses, it will be easier to establish a fair value for the government stakes, he adds.

Positive thinking

All are agreed that a positive conclusion to the Troika review is required to stiffen the nerve of possible investors in state assets. “All the investors want to see a speedy conclusion,” says Mr Bikas. “Then we can get back to business.”

In the event of a positive outcome, Mr Thanopoulos says Greece would be “resurrected”, and forecasts three important developments. One is that the ECB would start buying Greek bonds through its quantitative easing programme, allowing Greek corporates back into the bond market. Another is that Greek banks would lower interest rates, letting small businesses once again borrow and grow.

The third would affect the privatisation programme more directly. “Reform would allow the re-profiling of Greek debt, which would not only save €2bn to €3bn in interest payments but would create the perception for serious investors that Greece and Europe were re-engaging,” says Mr Thanopoulos.


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