Coca-Cola Hellenic Bottling Co. SA’s decision to leave its home equity market in Athens for London increases the chance that Greece will be demoted to an emerging market next year, MSCI Inc. said.

The index provider put Greece’s stock market under review for downgrade from developed status on June 20 and will make a final decision as part of its annual reclassification in June next year. The MSCI Greece Index consists of just two companies, with the world’s second-largest Coca-Cola bottler accounting for 75 percent by weight.

Market size “is the main driver for us to make that proposal, but on top of that, one needs to admit that there are still some operational issues that have been present since the inclusion of MSCI Greece in developed markets back in 2001,” Sebastian Lieblich, global head of index management at MSCI in Geneva, said in a phone interview Wednesday. Coca-Cola’s exit is “a very important development, and this is something we’d need to assess how investors see this move.”

Coca-Cola HBC’s departure will shave off about two-thirds of the increase in Greece’s market size since the end of June. The country’s largest company by market value is fleeing the epicenter of the euro-area sovereign-debt crisis, saying it wants a more stable economic and regulatory environment. The company will be based in Switzerland and will trade on the London Stock Exchange.

Lieblich said that MSCI’s decisions are based on consultations with investors.

MSCI said it won’t discontinue the Greece index after Coca- Cola HBC’s exit. Any deletions from the gauge will be substituted by the largest constituents of the MSCI Greece Small Cap Index, it said. There are currently 22 members in the small- cap measure, led by National Bank of Greece SA.

MSCI will “exceptionally maintain at all times at least two constituents in the MSCI Greece Index until further communication,” it said in a statement on Wednesday. Opap SA, Europe’s biggest listed gambling company, is the second stock in the MSCI Greece, accounting for 25 percent of the gauge’s weight.

Coca-Cola Hellenic makes up 21 percent of the benchmark Athens Stock Exchange Index, followed by National Bank, Hellenic Petroleum SA, Hellenic Telecommunications Organization SA and OPAP, with weights ranging from 8 percent to 5.6 percent.

The Greek market has lost about 85 percent of its value since peaking at $273 billion in November 2007 as surging borrowing costs forced the government to accept two European Union-led bailouts.

The market value of the MSCI Greece has risen to 7.9 billion euros ($10.2 billion) from 6.7 billion euros at the end of June, on optimism the nation will agree on a new financing package with the International Monetary Fund and European partners. The equity value is still down from 25.8 billion euros in June 2011.

The overall Greek equity market has climbed to 32.2 billion euros from 23.5 billion euros at the end of June this year. It would fall to about 26.1 billion euros once Coca-Cola Hellenic is removed.

MSCI said in June that restrictions on in-kind transfers, off-exchange transactions, stock lending and short-selling impeded Greece from having a fully functional trading place aligned with those of developed markets. The Greek authorities had not been receptive to repeated complaints from the international investment community, the company said.

“If at one point in time any market doesn’t provide enough stocks to clearly represent the investment-opportunity set, then we may be forced to consider it for demotion,” said Lieblich. “The current sovereign-debt issues that Greece is facing are not at all the trigger point for the reclassification of Greece. It is really the size combined with the operational issues which haven’t been solved over the past ten years which we see as a major concern.”

[Bloomberg]