US private equity firm KKR is promising Greek companies that become eligible for restructuring under a new deal signed last month with Greek lenders Alpha and Eurobank funding equal to 20 percent of their capital.
John Davison, cofounder and chief of Pillarstone, the platform that will manage the deal, speaks to Kathimerini about the potential of the collaboration and the benefits it can bring to both businesses and banks.
You have a lot of experience in turning around small and large companies worldwide. What is the key to success in restructuring?
Well, my experience started with our own family business at home. Our company made furniture and at the age of 18, my brother and I had to support our father in keeping the company afloat. That was an experience I have carried with me all my life and I vividly remember it every time I meet a company which is in some kind of trouble.
In my experience with hundreds of companies through my career, I have come across all sorts of different companies. Some had a strong viable business and a solid management team but had fallen into financial difficulty because of the macroeconomic situation; some had problems in the capital structure of the firm and some had operational problems that had created financial problems. Whatever the cause is of the problem, the key thing is quickly identifying what needs to fix it, come up with a clear roadmap to achieve that and then, in partnership with management and owners, get it done. We enable and support clear and strong leadership. We can provide extra operational support and fresh capital, but it is really about creating a new dynamic within companies, which often have been living in a situation of distress for quite some time.
How much money do you intend to invest through the cooperation with Alpha Bank and Eurobank. What types of loans are included in the loan portfolio that you agreed to manage? What other sectors are you interested in in Greece?
Initially, the portfolio will consist of bank exposures with a nominal cumulative value of around 1.2 billion euros. The management of individual exposures will be assigned to the platform after the due diligence process is completed for each business – and this is currently ongoing.
After that process is complete, we will directly engage with each company, and it is then that we will start to develop the more detailed turnaround plans with the management team. Through that process, it becomes clear exactly how much fresh capital is needed to help these businesses recover and what operational steps are critical to secure the turnaround. I have learned over the years that one needs to expect to inject, on average, about 20 percent of new capital to stabilize and rebuild the firm
How does the Pillarstone platform work and what will be the role of the companies’ boards ? Are they expected to cooperate or do they have to hand over the key?
My experience, both with the companies we are working with in Italy and during my time at RBS, is that the existing managers and owners welcome the capital investment and operational expertise we bring. In the end, we are working towards the same goal of saving and growing the company.
What’s been really pleasing about our work in Italy is the number of family founders and business owners that have approached us directly. For many business owners we are the catalyst for a solution that they have been waiting for for far too long.
Is there a chance of Greece's other systemic banks joining the platform?
This is an open platform and it has been specifically designed so that other banks can join. Similarly to our Italian platform, we have the flexibility to allow other lenders to participate or other companies to seek support from the platform. So, we would really welcome the participation of other Greek banks and companies in this platform.
A lack of liquidity is the Greek banking system's biggest problem, leading to a credit squeeze in the economy. Do you think the agreement could be a step towards rehabilitating Greek banks and if so, how?
I really believe that Pillarstone can be a part of the solution. Not in every case, for every exposure or every company. But definitively so for companies that have the potential for recovery with some outside help. Obviously, in stabilizing and turning around one company, there are significant benefits to related businesses like suppliers and thus to the wider economy.
And by helping the companies, we help the banks to address their exposures. So, this solution can help unblock the credit channel and free up Greek banks to lend into the real economy once again.
What is your baseline scenario for the Greek economy? Have you identified any growth drivers so far?
We are cautiously optimistic for the Greek economy. The situation remains challenging but there are encouraging prospects for recovery in the medium term and of a return to growth in 2017.
In addition, Greece has a strong potential in quite a number of sectors, such as agribusiness, tourism, pharmaceuticals, ITC and logistics. It will be the job of Pillarstone Greece to develop the full potential of Greek companies, many of which have been living in a state of distress, for many different reasons, for too long.