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Greek state-owned assets: for sale, one careful owner?

Greece has hired outside help to energize its faltering privatization programme. Euromoney talks to the man tasked with selling Greek assets to the world



Max Ziff must have one of the more daunting jobs in Europe because, as managing director and head of sovereign advisory at Houlihan Lokey, he has just been charged with kick-starting Greece’s faltering privatization programme.


In early January, Houlihan Lokey, together with Greek partner Axia Ventures, was hired as exclusive strategic adviser to the Hellenic Republic Assets Development Fund (HRADF), which was set up in July to manage the sell-off of Greek state assets.


Having originally targeted cumulative asset sales of €5 billion by the end of 2011, €15 billion by the end of 2012 and €50 billion by the end of 2015, HRADF has so far raised €1.8 billion. The target for sales this year has been slashed to €9.3 billion, but Kostas Mitropoulos, chief executive of the HRADF, has been widely reported in the local Greek media as telling Finance Minister Evangelos Venizelos that even this will be difficult.


It is not surprising that HRADF has therefore called in the cavalry.


"This is the biggest privatization of its kind and it is being done in the context of a sovereign in distress,” Ziff tells Euromoney from Athens. “The situation is in some ways unique but we can draw on our experience of advising the creditors to Iceland [and] the work we have done with NAMA in Ireland, and vast restructuring capabilities that we have within Houlihan Lokey. Our mandate is to make sure that the fund is doing everything that it possibly can to push the privatisation process along and looking at all alternatives that are in place."


That is going to be a tough job.

 
 “Could the fund sell some of these assets
  more quickly but at very low prices? Yes.
  Could it bring forward some receipts in
  order to keep the troika happy? Yes. But 
  it is more important to maximize overall
  value. Timing is just one aspect of that,” says
  Max Ziff, managing director and head
  of sovereign advisory at Houlihan Lokey


The fund has not surprisingly gone for the easy sales first and has so far sold the government’s stake in certain lottery and sports gaming licences, and mobile telephony licences to Vodafone and Wind Telecommunications. The tender process to award the licence to operate and manage the Hellenic Lotteries for a 12-year period was launched in November, with Österreichische Lotterien, a consortium of Sisal SpA, Damco Energy SA and Damlot SA and a consortium of OPAP Investment, Lottomatica Giochi e Partecipazioni Srl, Intralot Lotteries and Scientific Games Global Gaming going through to phase two. But other assets will be far more challenging to sell.


The fund, which was initially established to run for six years (but the programme has been pushed back a further two years by the IMF), has taken ownership of a raft of motorway, airport, defence systems, ports and marinas, and water supply and sewerage systems, and needs to prepare them for sale. It will also be selling several banks, including initially Agricultural Bank of Greece, Hellenic Postbank and the consignment deposit and loans fund.


"Each one of these assets has had a group of financial advisers appointed to it," says Ziff. "Some have received a great deal of information and some have had to start from scratch. The fund has a tremendous number of assets to keep control of. We are there to help them with a process to make sure this is done and that advisors are properly monitored. Often you don’t have the sort of financial information that you would have in the private sector.


"We have been appointed to help the fund make progress in getting assets ready for sale. Many of these assets will require restructuring in preparation for this. Advisers on the individual projects are doing the deep-dive analysis and we are, to a certain extent, looking over their shoulders to maximize timing and encourage investment.”


It is hard to imagine a tougher sell at the moment – in particular because of the continuing uncertainty over Greece’s receipt of the next round of bailout monies from the EU and the potential for default.


"It is pretty tough and will continue to be so until the PSI is sorted out and people really understand the underlying Greek credit,” says Ziff. “Many of these assets rely on state-related revenues and/or guarantees. But once everyone understands what is going to happen on the Greek debt situation, they will be able to understand what the art of the possible is. Until that happens, investors will cherry-pick opportunities.”


However, it is not only the sovereign situation that makes Greek privatization so challenging – the country’s intractable land and labour laws will be a deterrent as well.


“Labour laws are a consideration but at the moment it is much more important to understand what the future cash flows will be,” Ziff maintains. “This is very difficult as you have to make assumptions about future economic performance. The programme will obviously go for the low-hanging fruit first. We are therefore trying to get our heads around how you can monetise the more difficult parcels of smaller land assets.”


He emphasizes that the issue of property rights has been addressed in the structure of the HRADF fund itself, which has taken ownership of all the assets for sale.


“Within the legislation used to create the fund, there are powers, not dissimilar to those used for the Olympics, such that if there is a disputed claim of ownership, the dispute will be with the government, not the buyer of the property.”


Private equity interest in the programme has been encouraging, Ziff says, but it has a mountain to climb. Established as part of Greece’s medium-term fiscal strategy, the aim was for privatization of state assets to reduce the country’s outstanding debt as a percentage of GDP by 20%. The longer negotiations over a sovereign restructuring drag on and the more Greece’s fiscal austerity programme starts to bite, the tougher that target will be.


However, Ziff is adamant the programme will achieve successful sales.


“Could the fund sell some of these assets more quickly but at very low prices?" he asks. "Yes. Could it bring forward some receipts to keep the troika happy? Yes. But it is more important to maximize overall value. Timing is just one aspect of that.”


For more on distressed asset sales in Europe, see Euromoney's coverage of corporate restructuring in the February 2012 issue.



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