Analysis: Greek state firms could be investors' poison

Greece has to cut through a thicket of outdated regulations and labor laws if its ambitious privatization drive is to raise anything near the sums needed to avoid default and jump-start its ailing economy.

Having failed to sell a single cent's worth of assets since getting a 110-billion euro EU/IMF bailout last year, Greece has pledged to speed up privatizations to convince its increasingly exasperated lenders it is still serious about the rescue plan.

But unless it makes some tough choices in the run-up to the sales, such as higher power prices or allowing redundant staff to be fired at former state firms, Greece may fail to attract investor interest to raise the intended 50 billion euros.

"If things don't change, state companies will be impossible to sell or they will go at just 10 percent of their value," said Stefanos Manos, a former finance minister and author of a hugely successful privatization of mobile telephony in the 1990s.

The European Union and IMF are pressing Greece to conduct large-scale privatizations to raise funds for reducing its huge debt.

They want Athens to follow the example of Macedonian King Alexander the Great, who in ancient times solved the apparently intractable problem of the Gordian knot by slicing through it with one stroke of his sword.

Greece may face a far more laborious task.

Unpalatable Choices

Workers at several companies slated for privatization are virtually unsackable, owing to protective labor rules dating from monopoly days -- off-putting for investors who might need to wield the axe to squeeze out a profit.

Germany's Deutsche Telekom, which already owns 30 percent of former telecoms monopoly OTE, may use the labor issue as a lever to agree to buy the state's remaining 16 percent stake. Deutsche Telekom has already written down 900 million euros of its 3.8 billion euro OTE investment.

Deutsche Telekom said on Wednesday that it was open to discussions with the government on expanding the stake but was cautious on what was possible. "We must now enter talks and take a sober look at what conditions are possible or not," Chief Executive Rene Obermann told reporters in Cologne.

Some analysts say it is not realistic to think that Greece will be able to sell stakes in state-controlled lenders Postal Savings Bank and ATEbank, which are up to their necks in toxic Greek government bonds.

"No foreigner will come in and touch that unless the portfolio is written down by at least 50 percent," said Tania Gold, a banking analyst at UniCredit. "I don't see how a foreign bank would justify that to their shareholders."

Greece also faces unpalatable choices if it is serious about finding a strategic partner for its biggest power producer PPC, in which it wants to sell a 17 percent stake.

Before investors dare dip a toe into Greece's energy market, the government will have to stop regulating household electricity prices, which are among the lowest in Europe.

Greece has also yet to explain how it will comply with an EU order to scrap PPC's monopoly over production of coal, the country's cheapest energy source. Also unclear is how PPC, one of Europe's heaviest polluters, will cope with about 1 billion euros a year in extra carbon costs from 2013.

"Visibility for investors is currently zero," said Paris Mantzavras, an Athens-based energy analyst at HSBC.

Regulatory obstacles might also complicate the sale of the most precious jewel in Greece's privatization crown, sports betting monopoly OPAP with a market value of 4 billion euros.

Competitors may cry foul over government plans to extend OPAP's license before selling its remaining 34 percent stake in the company, a move that might lead to court challenges which would unnerve investors.

With a License to Sell

Even resolving regulatory problems is no guarantee that privatizations will go ahead smoothly. Sales attempts may still flounder over low stock market valuations, fierce labor union resistance and lack of political support.

Selling company stakes at depressed market prices may be too much for politicians to stomach.

Anybody in charge of asset sales, such as the independent privatization agency proposed by the Greece's lenders, will need protection from lawsuits likely to be filed by disgruntled labor unionists or trigger-happy public prosecutors.

"Without immunity, nobody is going to put their signatures on any sales agreement," Manos said.

All the bourse-listed company stakes Greece owns are worth about 7.6 billion euros in total -- less than half their value in October 2009, when the Socialist government took office.

PPC shares currently trade at only about 40 percent of the company's book value. "A sale at such prices could raise legal issues," a PPC insider told Reuters.

Ruling party politicians are already getting cold feet. Socialist deputy Alexandros Athanasiadis said he will vote in parliament against any PPC stake, adding that other colleagues may follow his example.

"I don't feel alone in this," said Athanasiadis, a lawmaker for the Kozani region, where PPC is the biggest employer.

Added to uncertainty about revenue from property sales, for which there are no clear legal titles [ID:nLDE74421A], observers doubt that Greece will hit the 50-billion euro target.

"The scale of the challenge before the Greek authorities, including a new commitment to privatize 50 billion euros in state assets by 2015, and their ability to deliver in the face of rising implementation and political risk is increasingly in doubt," said Paul Rawkins, senior director at ratings agency Fitch.

[Source: By Harry Papachristou, Reuters, Athens, 01Jun11]

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