Who wants to invest in Greece?
The Greek government narrowly pushed through a law ending the government's obligation to own stakes in former state-owned companies, but only confident investors should buy distressed Greek assets, explain analysts.
On Wednesday, Greece’s government narrowly won a parliamentary vote to pass a new law on privatization. The legislation will put an end to the government’s obligation to own a minimum stake in former state-owned companies, while potentially speeding up privatization approvals.
The law comes as the Greek government is struggling to raise funds to combat overwhelming public debt under strict measures established by the EU troika. Without the economy on official sector life support, the jury is out on whether Athens can make good on its privatization drive to shore up the government's solvency.
According to a recent report published by the United Nations Conference on Trade and Development (Unctad), since the eurozone debt crisis hit, foreign direct investment (FDI) into Greece, and other affected eurozone countries, is little changed compared with pre-crisis years.
But the Unctad study also claims that there are underlying variables showing signs of distress. “Given the depth of recession, especially in Greece, reinvested earnings – one of three components of FDI – were down,” says the report, and the fact that intracompany loans were negative for Greece between 2007 and 2010 highlights the “protracted nature of the crisis and of the level of adaptation on the part of transnational corporations”.
Nick Kounis, head of Macros research at ABN Amro, says: “Privatization receipts are constantly under shot. Although selling off government assets is part of the government’s fiscal adjustment programme to sell off debt, the government is falling way behind target.”
According to Unctad, Greece plans to raise $50 billion through the sale of state-owned companies and real estate, but recent reports highlight the inability of Greece to reach these goals. Under Greece’s bailout terms, the government aimed to raise €19 billion by the end of 2015. But last week, the amount the government will aim to raise was revised down to €8.8 billion within the same time period.
Moreover, investors are getting a cheap deal on those assets up for grabs. A source at the Black Sea Trade and Development Bank says: “Before the crisis, it was estimated that total government-owned assets were valued at between €250 billion and €300 billion, although no official valuation confirmed this assumption. Accounting for intrastate obligations and spending, and considering the decline in value of GDP by roughly speaking at least 25% over the last couple of years, technically, the total value of assets should be currently about the value of GDP.”
Nevertheless, investors can expect to pay around a 30% discount on government-owned assets, highlighting that Greek assets are underpriced, says the source.
The more important questions, however, is who would want to buy such assets even at distressed prices? As it stands, it’s not just Greek assets that are distressed, but the country as a whole. “To buy Greek assets, investors need to have a lot of nerve and a strong stomach,” says the source.
“There is still a huge risk involved for investors in Greece,” says Kounis. “If Greece were to leave the euro, the costs would be immense and would potentially wipe out investors’ complete business plans. Enterprises entering Greece’s domestic economy will be very worried.”
Nevertheless, there are signs of life. According to Invest in Greece, the official investment promotion agency of Greece, there are still a number of large investment projects under way in the region, and private companies have set up shop in the economy.
Swiss retailer Dufry has agreed to buy 51% of duty-free operations of its Greek rival, Folli Follie, for €200.5 million, gambling that the tourists will continue to flock to Greece, amid the crisis. The deal is likely to close in early 2013 and Dufry has an option to buy the remaining 49% of the company in four years' time. The Swiss investment follows China-based FOSUN Group’s 13.4% investment in Folli Follie in 2011.
In May last year, US-based firm Watson Pharmaceuticals bought Greece's Specifar for $562 million, broadening the company’s overall European coverage, and retail outlet McArthur Glen opened its 20th European outlet store in Athens with an investment of €100 million. It will create 1,000 new jobs in the process.
One of the biggest and most recent infrastructure developments in Athens is that of the Stavros Niarchos Foundation Cultural Centre (SNFCC). The privately coordinated development of a new opera house, national library and park in southern Athens by the foundation for € 566 million was due to commence this October. Once construction is completed, SNFCC ownership will be fully transferred to the Greek state, although some responsibility for the finished project will still lie with the SNFCC.
To accelerate the privatization process, the Greek government has established the Hellenic Republic Asset Development Fund (HRADF), aimed at attracting international capital flows to help restart the Greek economy. Through the scheme, public assets are transferred by the state to HRADF and any asset transferred to it is to be sold, developed or liquidated.
HRADF’s remit includes the latest development of the Hellinikon airport area, the International Broadcasting Centre and the upgrade of five major motorways in the Hellenic region. The aim of these projects is to enhance trade routes, transport and tourism throughout central and southern Greece, which will in turn boost economic development.