Greek economic collapse

Greek Privatization Effort Flops on Lack of Bidders

24/7 Wall Street,

10 June 2013

If things are really stabilizing or set to get better in Greece and the rest of the PIIGS in Europe, then why did a privatization sale end up with no bidders? That is what we would like to find out about in Greece now. The nation was trying to privatize the natural gas company called Depa. Dow Jones reported the failed sale earlier on Monday and this is not a good sign for outside perception that things in Europe are getting much better.

What matters here is that no bidders surfaced for Depa. If Greece cannot privatize certain assets, then there is going to be yet another budget hole that was expected to be filled under the existing bailouts for the nation. The real risk is that Greece has to opt for more austerity measures rather than raising capital, and the ramification of that is that the Greek public does not want to absorb any more sacrifice on top of the cuts it has already seen.

The so-called sister company of Depa is Desfa, the gas-grid operator. It was said to have received only one bid. We were looking for more than 1 billion euros to come from the privatizations based upon past comments that Greece was hoping these assets would generate somewhere in the vicinity of half of the 2.6 billion euros that the nation needs to raise. We were not as optimistic as the half, but getting a billion euro or even close to it would have been a solid start and a show that long-term infrastructure buyers are at least willing to look at Greece again.

We would remind the public that the OPAP state-run gambling entity came down to a single bid and then the entity posted a loss after the deal closed. Infrastructure buyers are likely concerned that they would have to keep providing services in some manner even if the public cannot pay or if the public refuses to pay. Unfortunately, that is a risk when it comes to dealing with the public.

The Athens Stock exchange’s general index was down over 6% at one point, but closed down over 4% on Monday. The National Bank of Greece SA (NYSE: NBG) was down 4.5% at $5.25 in New York ADR trading in mid-afternoon trading, although this could be continued worries over its banking operation in Turkey. In Turkey, both the iShares MSCI Turkey Investable Market Index (NYSE: TUR) and Turkish Investment Fund Inc. (NYSE: TKF) were each down another 1% or so as the prime minister again called for an end to the demonstrations. Back over Greece, the Global X FTSE Greece 20 ETF (NYSE: GREK) ETF was down 3.7% at $17.27 on last look.

We wonder if Fitch would have still issued last month’s credit rating upgrade for Greece if the nation’s privatization efforts were expected to come with no outside interest in buying the assets.

Greece First Developed Market Cut to Emerging at MSCI

Greece became the first developed nation to be cut to emerging-market status by MSCI Inc. (MSCI) after the local stock index plunged 83 percent since 2007.

Bloomberg,

12 June, 2013

Greece failed to meet criteria regarding securities borrowing and lending facilities, short selling and transferability, said MSCI, whose equity indexes are tracked by investors with about $7 trillion in assets. Qatar and the United Arab Emirates were raised to emerging markets, while Morocco was cut to a frontier market. New York-based MSCI kept South Korea and Taiwan as emerging markets, and placed Chinese shares traded on local exchanges on review for inclusion in the emerging category, according to a statement yesterday.

The ASE Index fell 1.4 percent to 882.99 at 1:49 p.m. in Athens. The gauge has dropped 10 percent this week as Greece failed to win any bids in a sale of the country’s gas monopoly. The unsuccessful attempt to sell Depa SA dented Greece’s state-asset sales program, which underpins 240 billion euros ($318 billion) of bailout loans from the euro area and International Monetary Fund.

“It is unclear yet what the weight of the MSCI Greece will be on emerging markets, but in any case it will be significantly higher than that it has on developed markets,” Constantinos Zouzoulas, an analyst at Axia Ventures Group, a brokerage in Athens, wrote in a note. “This could be positive news for the Greek market as it could attract more interest, although there could be pressure in the short term.”

Bailout Packages

Locked out of bond markets since April 2010, Greece accepted two European Union-led bailout packages as public opposition to pension and wage cuts derailed the pace of promised economic reforms. The ASE was the world’s second-worst performer since October 2007.

MSCI put Greece under review for downgrade in June 2012, saying restrictions on in-kind transfers, off-exchange transactions, stock lending and short-selling stopped the country from having a fully functional market. The probability of a demotion increased after Coca-Cola HBC AG, the soft-drink bottler that previously made up almost a quarter of the Athens Stock Exchange by weight, switched its primary listing to London in April.

The index provider upgraded Greece to developed-market status in 2001. The weight of Greek companies in the MSCI World Index has tumbled to 0.01 percent from 0.16 percent in May 2010, according to data compiled by Bloomberg.

‘Safe Havens’

“We’re already seeing money heading back to safe havens and the MSCI decision may exacerbate that,” Peter Sorrentino, who helps manage about $14.7 billion at Huntington Asset Advisors in Cincinnati, said in a phone interview. “Greece’s downgrade brings them back to the forefront and it’s a sign that the crisis in Europe is far from over.”

MSCI’s reclassification of Greece follows Russell Investments, which advises funds with $2.4 trillion in assets. Russell said in March it will downgrade Greece to an emerging from a developed market after it failed economic and operational-risk assessments.

The ASE has rallied 85 percent since June 5, 2012, as Greek Prime Minister Antonis Samaras’s New Democracy party formed a coalition government after finishing first in repeat elections and European Central Bank President Mario Draghi vowed to do whatever it takes to preserve the euro......