Bloomberg News

Europe’s Yard Sale May Come Up Short as Buyers Seek Bargains

June 15, 2011

(Updates with Papandreou’s reported offer to resign in fifth paragraph.)

June 15 (Bloomberg) -- Prime Minister George Papandreou vowed in 2009 to scrap an agreement to sell a stake in Greece’s biggest phone company in a bid to get elected.

This month, forced to raise cash, Greece triggered an option to sell 10 percent of Hellenic Telecommunications Organization SA, known as OTE, to Deutsche Telekom AG. The price: less than one-third of what Europe’s largest phone company paid for shares when it last bought OTE stock in 2009.

That deal underlines the challenge facing European countries such as Greece and Ireland, awash in debt, that are hoping to raise as much as 71.5 billion euros ($103 billion) in the continent’s largest yard sale of state assets in more than a decade. The push may founder as investors seek better returns in Asia and lower prices than governments are willing to accept, bankers and investors say. The threat of Greek default or euro breakup is scaring buyers and depressing prices, they say.

“Forced sales in a downturn are unlikely to achieve good terms,” said William Megginson, a finance professor at the University of Oklahoma, who advised the Italian government on privatizations from 2002 through 2007. “Sovereign wealth funds invest where their money is safe, and Europeans love China. It’s very hard to see how Greece can raise such an amount.”

Greek Strike

Papandreou, amid mounting opposition and defections from allies, offered to resign to allow the formation of a unity government, a person with direct knowledge of the matter said today. Meanwhile, Greece’s ports, banks, hospitals and state-run companies ground to a halt as the two biggest unions went on strike to oppose budget cuts and asset sales. Police said about 20,000 people were outside the parliament in the third general strike of the year.

The record debt racked up by Greece, Spain, Ireland and Portugal has tested the unity of the European Union. With Greece unable to borrow -- the extra yield investors demand to hold 10- year Greek bonds relative to German bunds is 15 percentage points -- European Central Bank President Jean-Claude Trichet has opposed efforts to make bondholders share the burden by restructuring debt and instead pressed for sales of public assets as part of the solution.

Greece, whose 330 billion euros of debt amounts to 1.5 times its gross domestic product, has committed to an unprecedented 50 billion euros of asset sales by 2015, including a casino in Athens, a golf course on the island of Rhodes, toll roads and a stake in gas supplier Public Gas Co., known as Depa.

Spanish, Irish Sales

Spain plans to sell stakes in its state lottery and an airport operator to raise 14 billion euros in its biggest divestment ever. Ireland and Portugal want to raise 7.5 billion euros between them. Among Irish assets that may be sold: the National Stud, the state horse-breeding estate, and shares in Aer Lingus Group Plc, Ireland’s second-largest airline.

In addition to fund managers and individual investors targeted in initial public offerings, potential buyers include sovereign wealth funds and private-equity firms. They will all be shopping for bargains, bankers said.

“The question is do you get full value?” said David Sola, a managing director at investment bank Houlihan Lokey in London. “The governments will get fair value, but perhaps not maximum value they could get if they prepare the assets over a longer time for sale.”

Governments, which must contend with public-worker unions that oppose the sales, don’t want to be seen as selling cheap.

“We have no intention of having a fire sale,” Ireland’s finance minister, Michael Noonan, said on June 8.

Opap Stake

Still, prodded by the EU and the need to cut debt, the sales are inching ahead. In Greece, whose credit rating was cut to the lowest in the world this week by Standard & Poor’s, a sale a week is planned for this year.

Papandreou last month named Frankfurt-based Deutsche Bank AG and Credit Suisse Group AG in Zurich to run sales, including that of a 34 percent stake in Athens-based Opap SA, Europe’s biggest publicly traded gambling company, a holding with a stock-market value of 1.2 billion euros. Citigroup Inc., based in New York, is helping the government find developers for Hellenikon, Athens’s former airport, a site valued at 4 billion euros, according to an Alpha Bank AE report in September.

Spokesmen for Deutsche Bank, Credit Suisse and Citigroup declined to comment.

Qatar Prime Minister Hamad bin Jasim Al-Thani told reporters in Luxembourg on June 9 that talks with Greece continue after the Gulf country’s September agreement to consider investing as much as $5 billion in industries including tourism and real-estate projects such as Hellenikon.

Spanish Lottery

“When finished, we will fulfill our agreement,” he said. “We think it could be a good model of how we can do good business and also help the business community in Greece, which we are committed to.”

Spain plans to sell a 30 percent stake in its national lottery, Sociedad Estatal Loterias y Apuestas del Estado, for at least 6 billion euros in an IPO and wants to generate more than 8 billion euros from the sale of a 49 percent stake in airport operator Aeropuertos Espanoles y Navegacion Aerea SA, or Aena, and the management contracts for the airports of the country’s two biggest cities, Madrid and Barcelona.

Foreign Investment Falls

The sales will come after foreign investment into Portugal, Greece and Spain -- a measure of fund flows into nations -- declined by about 10 percent last year, based on the number of projects, according to an Ernst & Young report last month.

“Investors have their eyes and pocketbooks attracted by other regions,” Marc Lhermitte, the London-based Ernst & Young partner who wrote the report, said in an interview. “Europe may have peaked as an investment destination.”

Demand from European investors may be stronger, he said.

Abertis Infraestructuras SA, one of Spain’s largest construction companies, is “looking at both the Barcelona and Madrid airport concessions with interest,” said a spokeswoman. “No valuation is possible till full conditions are known,” she said, declining to be identified in line with company policy.

The European sales face growing competition from similar assets elsewhere, according to Daniel Wong, head of European infrastructure and utilities at Macquarie Capital in London.

“There are definitely more assets in the energy and infrastructure space on the market than there were two years ago,” Wong said. “This means, where the assets are not performing well or are structurally complicated, they tend to fall off the buyers’ lists relatively quickly.”

Overcrowded Market

Domenico Siniscalco, Morgan Stanley’s Italy chief, said in a speech in Milan last month that there’s a risk companies will “overcrowd” the market by attempting too many transactions at the same time. Morgan Stanley was the top global merger adviser in 2010.

Public-market offerings, such as the one planned for the Spanish lottery company, were the backbone of Europe’s privatization wave in the late 1990s, raising tens of billions of dollars, and may fare better than asset sales, according to Megginson, who has studied government disposals for 20 years. Investor capacity is even greater now, he said.

Private-equity firms, with $558 billion available, are also potential buyers, according to Chris Mallon, a corporate restructuring lawyer at Skadden Arps Slate Meagher & Flom LLP in London, who advised Greece on the reorganization of Olympic Airlines SA before it was broken up in 2009.

“There’s an appetite for deals among private-equity firms, with a lot of sponsors chasing few deals,” Mallon said. Still, “the deals will require the ability to invest in the operational capabilities as well as the expertise and cultural sensitivity to make them work.”

TPG, BC Partners

TPG Capital, the Fort Worth, Texas-based private-equity company co-founded by David Bonderman, and London-based BC Partners Ltd., which both invested in Greece in the past, are among those considering bidding for Greek assets, people with knowledge of the matter said. Buyout firms may try to partner with corporations or with sovereign wealth funds to make joint bids to mitigate the risks, they said.

Some assets, such as Opap, the Greek gambling company, will require new regulation to give investors more certainty, said Giancarlo Aliberti, managing director in Milan of British buyout fund Apax Partners LLP. Obtaining loans to fund purchases may also be difficult, he said.

“There isn’t that much debt available, and financial support from the EU needs to be confirmed to stabilize the macroeconomic conditions,” Aliberti said. “But under the right conditions, with the right timing and for the right assets, investments in the country can be attractive.”

Opap Shares Fall

Opap shares dropped 29 percent since March 28 to 11.30 euros, the level they first reached in 2004. The Athens Stock Exchange General Index is trading near a 14-year low.

Signs that the U.S. economy may be slowing are raising concern that the recovery in the 17-member euro area may be threatened, and slower growth may make meeting debt obligations even tougher as government revenue falls.

“At this stage, debt-ridden European countries have no other options but to sell assets,” said Carles Vergara, a finance professor at IESE Business School in Madrid. “It’s the only way left to obtain extraordinary income quickly without further cutting spending or increasing taxes. State-owned assets are there for governments to be able to raise cash in moments of crisis, and this is a crisis if ever there was one.”

--With assistance from Angeline Benoit in Madrid, Finbarr Flynn in Dublin, Brett Foley, Jeff St.Onge and Anne-Sylvaine Chassany in London and Natalie Weeks and Eleni Chrepa in Greece. Editors: Steve Bailey, Robert Friedman.

To contact the reporters on this story: Elisa Martinuzzi in Milan at; Maria Petrakis at

To contact the editor responsible for this story: Edward Evans at

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