Debts prove difficult to bear

Many listed firms’ ability to repay is seen virtually dependent on a miracle

By Yiannis Papadoyiannis - Kathimerini

A number of companies listed on the Athens Stock Exchange (ASE) are reportedly in dire financial straits, unable to meet high debt loads while banks appear reluctant to extend new credit facilities.

Bank officials are expressing serious concern about the situation and the ability of many groups to extricate themselves from the current stalemate. Indeed, for a number of them, banks have already exhausted all possibilities for refinancing their debt and margins of good will to help them out. In many cases, banks feel a great deal of money is virtually irrecoverable. There are companies whose interest payments exceed the total of their administrative expenses, or 10 percent of their annual turnover.

That said, however, bankers concede that such cases are few and that total debts are not large enough to pose a serious threat for banks.

But for those which see no light at the end of the tunnel, the bear market on the ASE and the minimal current interest of investors leave no margin for share capital increases which could, in some measure, help prop up their balance sheets. Besides, among the groups that appear to be most heavily debt-laden are some which had carried out the largest share capital increases during the stock market boom of 1999.

The list of the most indebted enterprises according to their financial statements for 2003 is topped by Sarantopoulos Flour Mills, with a debt/equity (D/E) ratio of 72.91, followed by Microland Computers (31.10), Mouriadis (14.30), Corinth Pipe Works (8.51), LogicDis (5.84), Micromedia-Britannia (5.70), Attica Publications (5.44) and Axon (5.13). Of course, high D/E ratios must be considered in conjunction with firms’ type of activity and the related prospects. It is also certain that many enterprises in a particularly difficult economic position have managed, through skillful accounting moves, to remain unnoticed. But despite such efforts, their real financial situation cannot be hidden from well-grounded readers of balance sheets and the notes of chartered auditors.

The liabilities of some firms are so high that, combined with the stagnation in their activity and their entrapment in misplaced investment moves, they are facing a survival problem. Analysts point out that dozens of firms are laden with such heavy loans that they must keep going for centuries in order to pay them back. Those with high D/E ratios include almost all ferry operators, and most in the sectors of information technology, fish farming and textiles, which are considered problematic.

It is seen as no coincidence that last year’s stock market rebound displayed a dual picture: One side was dominated by blue chips, which realized impressive gains and supported the recovery of the indices; the other picture included the vast majority of small and mid-sized capitalization stocks, which either simply maintained their ground or continued to drop.

This dual picture continued in the first quarter of 2004. The overall disappointing performance of small- and medium-caps largely reflects the reservations of the investors regarding their possibilities for survival. The uncertainties are compounded by the planned introduction of International Financial Reporting Standards, which will put a stop to widespread creative accounting practices and bring to the surface more sins of the past.