Higher writedowns could derail privatisations

Greece's ambitious privatisation process cannot move forward until the size of proposed private sector involvement (PSI) in restructuring the national debt have been settled, bankers have said, because any changes could affect valuations and growth prospects for the assets on the block.

Up to 11 privatisations are underway at various stages, but raising the full target by the end of December may prove challenging, the bankers said.

"The sooner we have a solution on the new PSI the easier it will be to start privatisations," one of the bankers familiar with the matter said. "If investors were confident that the country's net debt-to-GDP would not further deepen, the country could attract foreign interest again," the banker added.

Greece has so far pocketed over 1 billion euros through the sale of a 10 per cent stake in OTE to Deutsche Telekom for 400 million euros and a 10-year extension of existing licences in Europe's biggest gambling firm, OPAP, worth 925 million euros.

"About 2 billion euros [worth of sales] are happening now and another 2 billion would be possible in theory, but extra time [beyond December 31] will be needed for the money to change hands," said a second banker working on one of the most advanced projects.

The most advanced privatisations include OPAP, in which the state has a 34 per cent interest, a real estate portfolio worth about 300 million euros and a 55 per cent stake in Athens International Airport which could fetch about 400 million euros, according to the bankers.

Even private equity buyers, often more opportunistic than listed acquirers, are reticent.

"I think that there are privatisation assets that would appeal to private equity but nothing is going to happen with buyers until we have clarity around PSI," said a banker that advises private equity firms.

An executive at a private equity firm also said there was "massive" disparity between the price the government was looking to realise and what potential bidders are prepared to offer.

OPAP, which has lost half of its market value since May, may be the first important test case as to whether valuation issues will limit interest in a transaction.

OPAP could attract interest from market participants including Lottomatica of Italy and private equity firms like Apax Partners, other bankers said earlier in the year, before Greece's problems had intensified.

"You don't optimise value when you are under threat," said the second banker, adding that forcing asset sales in the current environment would mean accepting up to a 30 per cent discount.

MORE HAIRCUTS?

The bankers see the current bail-out package including a 21 per cent haircut for the country's private creditors as "somehow optimistic" and are now expecting the EU, IMF and ECB inspectors, collectively known as the troika, to agree on a "more realistic haircut" of between 35 per cent and 50 per cent.

EU, IMF and ECB inspectors concluded that "the achievement of the fiscal target for 2011 is no longer within reach", citing "a further drop in GDP" and "delays in the preparation of the assets for privatisations".

One striking example is the protracted sale of gas operator Depa, still stuck in a year-long dispute with largest client Public Power Corporation (Dei) which holds an option to acquire 10 per cent of the company.

Dei could renounce its option in return for cheaper gas supply contracts from Depa but the parties are still a long way from any agreement, a third banker familiar with the matter said.

Eurogroup's president Jean-Claude Juncker last week said that although Greece was "in a good path", more could be done on privatisations.

"It is fair to say that over the last year and a half nothing has happened", the first banker said, referring to the Greek government's initial plan to seek alternatives to privatisations.

"But since the privatisation agency was created in August, things are moving in the right direction," the banker added.

Source: Reuters