Greece Fights Debt with $71 Billion Yard Sale

Hurdles include political opposition and legal challenges

A wooden sculpture of a man’s head locked in a vise sits on a cabinet behind Aristotelis Karytinos, general manager of real estate at the National Bank of Greece and a government adviser on the sale of state assets. “That’s how we’re all feeling lately,” says Karytinos. Greece has committed to raising an unprecedented €50 billion ($71 billion) from state assets by 2015 as part of plans to win more international aid and avoid defaulting on its €330 billion in debt. Among the items designated for sale or lease are a casino in Athens, a golf course on the island of Rhodes, toll roads, and a stake in gas supplier Public Gas Supply Corp. of Greece, known as Depa.

Potential buyers include sovereign wealth funds and private equity firms, along with institutional and individual investors who may buy stock in initial public offerings. All will be shopping for bargains, bankers say, and the fact that many assets will come to market at the same time may depress prices. “The governments will get fair value,” says David Sola, a managing director at investment bank Houlihan Lokey in London. “But perhaps not maximum value they could get if they prepare the assets over a longer time for sale.”

On June 6, Greece triggered an option to sell 10 percent of the Hellenic Telecommunications Organization, known as OTE, to Deutsche Telekom. The price: less than one-third of what the Bonn-based phone company, Europe’s largest, paid for shares when it last bought OTE stock in 2009. “Forced sales in a downturn are unlikely to achieve good terms,” says William Megginson, a finance professor at the University of Oklahoma, who advised the Italian government on privatizations from 2002 through 2007. “It’s very hard to see” how Greece can meet its goal of generating €50 billion, he says.

Having prevailed in a confidence vote in parliament on June 22, Greek Prime Minister George Papandreou won backing on June 29 for the so-called Medium-Term Fiscal Plan, which sets out budget cuts and asset sales. A second vote to authorize implementation of the plan was set for June 30. The measure is aimed at meeting European Union aid requirements and staving off default. After the vote, police fired tear gas at demonstrators outside Parliament. Greece’s biggest trade unions held a 48-hour general strike on June 28 and 29 to protest the sales and austerity measures, while Public Power Corp., Greece’s largest electricity provider, had cut supply for nine days as of June 29, as its workers went on strike to protest the government’s plans to sell part of its stake in the utility.

Other troubled European nations are trying to shed assets, too. Spain hopes to sell a 30 percent stake in its national lottery for at least €6 billion in an IPO and wants to generate more than €8 billion from the sale of a 49 percent stake in airport operator Aeropuertos Españoles y Navegación Aérea, or Aena, and the management contracts for the airports of Madrid and Barcelona. Ireland and Portugal want to raise €7.5 billion between them. Among Irish assets that may be sold: the Irish National Stud, the state horse breeding estate, and shares in Aer Lingus Group, Ireland’s second-largest airline. Overall, Greece, Ireland, Portugal, and Spain hope to get a total of €71.5 billion from Europe’s largest yard sale in at least a decade.

In May, Papandreou named Deutsche Bank and Credit Suisse Group to run sales, including that of the government’s 34 percent stake in Athens-based Opap, Europe’s biggest publicly traded gambling company, a holding with a stock market value of €1.2 billion. Citigroup is helping the government find developers for Hellenikon, Athens’s former airport, a site valued at €4 billion, according to an Alpha Bank report. Spokesmen for Deutsche Bank, Credit Suisse, and Citigroup declined to comment.

Greece, which plans to get €35 billion of its €50 billion goal from real estate, is the only country in Europe without a centralized registry of deeds. The ownership of about 40 percent of registered state properties is being disputed, and an additional 25 percent have “questionable” legal status, George Papaconstantinou, the Greek finance minister until he was replaced on June 17, told lawmakers earlier this year. The Greek government passed legislation in November to speed up raising money from state property and in December said it intended to appoint a general secretary for real estate. So far no one has been named to the post. “Absolutely no red tape has been cut,” says Yannis Perrotis, managing director of Athens-based CB Richard Ellis Atria, an affiliate of the world’s largest commercial property broker.

In May the Greek Finance Ministry said it would start offering the first group of state properties to investors in December, rather than June, as originally promised. On June 9 the ministry gave Karytinos a list of 99 properties so he could begin preparing them to go on the market. In his office at National Bank of Greece on June 7, Karytinos is poring over paperwork. The government hasn’t yet decided what to do with the real estate, he says. Among the options being considered are outright sales, leases of up to 99 years, lease-back deals or packing assets into publicly traded securities. “The government understands that it needs results and it needs them as quickly as possible,” he says. Around the corner in Syntagma Square, protesters chanted and held up banners outside Parliament.


    The bottom line: The Greek Parliament’s passage of austerity measures on June 29 sets the stage for state asset sales to proceed.

    Before it's here, it's on the Bloomberg Terminal.