Debt-laden Greece gambles on privatisation

Fri Jul 8,2011
By Angeliki Koutantou & Victoria Howley

ATHENS/LONDON (Reuters) - A debt crisis, recession, plunging stock markets and a soccer scandal are not the best conditions in which to sell a stake in Europe's biggest betting company.

But that is what cash-strapped Greece faces as it prepares to sell OPAP, the most valuable asset on the government's privatisation list this year.

Greece must sell 50 billion euros ($73 billion) worth of assets by 2015, starting with 5 billion in 2011. This is a condition for a second European Union/International Monetary Fund bailout for the debt-laden country, after a 110 billion euro rescue last year.

Many bankers say the plan is far too ambitious and fear it will fail while a few say pressure from Greece's lenders and E.U. lawmakers w ill force the government to achieve its goal.

"I only wish the 50 billion euros was a legitimate target, but in this timeline, no way," said an investment banker involved in the plan, who declined to be named. "It is a pipe dream ... you can't make M&A happen just like that," he said.

OPAP will be the first big test of Greece's forced asset sales and the government is hoping investors will be tempted, despite the country's problems.

Unlike most of the assets earmarked for sale, OPAP is debt-free, profitable and has no strong labour unions.

The state's 34 percent stake in the company has a market value of about 1.17 billion euros.

Unlike most other Greek public firms, OPAP has a lean workforce and generates annual profit of about 600 million euros. "This makes it easier to sell than any other state company," said a local investment banker who advises Greece on asset sales.

PRICING UNDER SCRUTINY

But even OPAP poses problems that make many

observers doubt the privatisation plan is feasible, particularly as more complex sales are due to follow, like loss-making railway operator OSE and heavily unionised electricity utility PPC.

Greece may find it hard to sell assets at prices that the Socialist government and its privatisation-wary MPs can swallow.

The market value of companies, such as PPC or refiner Hellenic Petroleum, are already way below their pre-crisis levels.

Some fear that the tight timetable imposed on Greece by its lenders may lead to a fire-sale at knock-down prices. The nation would have to sell an asset every 10 days to meet its targets.

Greek lawmakers from both government and the opposition have warned they will oppose any fire sale. Despite passage of a framework austerity law last month which establishes an independent privatisation agency, the sale of big-ticket state companies will still require parliamentary approval.

"Given the haste element, I believe the OPAP stake will be most likely sold at a discount to the stock market value," another banker involved in the privatisations said .

Recession is already forcing Greece to settle for less. On June 30, the government sold spare carbon emission rights at a 20 percent discount to initial expectations.

And telecommunications firms have warned they will not fork out the 240 million euros the government expects them to spend in a frequency spectrum auction later this year.

BYZANTINE BUREAUCRACY

Bureaucracy is another hurdle. The country earlier this year appointed advisers for a host of privatisations, including a property development at the old Athens airport.

But it has not done much since then. According to at least two bankers involved, letters of engagement have still not been signed for many of the assets, which means the sales cannot start.

A senior government official told Reuters that an adviser will not have determined the sales terms for railway operator OSE before the end of this year. According to the EU/IMF timetable, OSE is supposed to have been sold by then.

Companies like OPAP and PPC also continue to be dogged by arcane regulations. A new law allowing OPAP to expand into online gambling has been delayed for months, thanks to MPs' reluctance "to turn Greece into a casino".

Some analysts fear Greece will not manage to clear up the regulatory tangle in time to sell companies like OPAP this year.

"Deadlines are too tight, I'm not sure they will manage the sale in time," said Paris Mantzavras, an analyst at HSBC.

A huge scandal that broke out last month has cast a cloud over Greece's soccer league, which is OPAP's showcase competition, and may also discourage investors, analysts said. The new soccer season may not even start in September.

AGGRESSIVE, BUT ACHIEVABLE

But some local investment bankers say that the 50 billion euro target could be reached. "There is great pressure on Greece ... the programme is aggressive but achievable," said one banker involved in some of the planned sales, including real estate, OPAP and Athens Airport.

Bankers away from the sales process are already thinking about potential buyers for OPAP. Private equity firm Apax Partners, Italian lottery operator Lottomatica, U.K. bookmaker William Hill and private equity firm KKR could be possible candidates, according to one.

Apax and William Hill declined to comment about the sale, while spokesmen for Lottomatica and William Hill did not immediately respond to a request for comment.

U.S. investment funds Capital Research & Management and Fidelity already own 15 percent and 5 percent of OPAP respectively. Capital Research also declined to comment on the planned sale.