Bill on corporate bonds, securitization unveiled

The government yesterday unveiled draft legislation setting out the framework for companies to venture into the corporate bond and securitization market. The move to open up an alternative source of funding for businesses comes as low share prices thwart companies’ attempts to raise capital on the stock market. Since the bursting of the bubble in late 1999, the Athens stock market has gone into a decline that appears to have no end. The benchmark general index yesterday fell to a five-year low of 1,570.03 points. The index has lost a tenth of its value since the beginning of the year. The proposed legislation covers offerings of corporate bonds, exchangeable and convertible bonds, and receivable and mortgage-backed securitization transactions. In what could prove to be a major incentive toward jump-starting what is essentially virgin territory for Greek businesses and investors, the bill exempts issues or transfers of corporate bonds from direct and indirect taxes. Companies planning to issue corporate bonds will need to get shareholders’ approval or hold an extraordinary assembly to cede authority to the board of directors for the financial operation. In the case of securitization transactions, the board of directors would not need the green light from shareholders before launching an issue. Popular in other EU countries, corporate bonds have been rarities in Greece, with passenger shipping company Attica Enterprises, construction firm Edrassi, dairy product manufacturer Delta and Hellenic Railways among the few to have tapped the market. Securitization operations, on the other hand, to date have been solely a governmental affair, with the lack of a legal framework acting as a deterrent to the private sector. Alex Manos, economist at London-based Schroder Salomon Smith Barney, said Greek corporate bonds and securitization transactions could take off «if the credit rating is right, if people believe there’s a good story.» He said a number of factors determine whether companies and investors will accept these financial tools. The greater operational flexibility and fewer controls associated with issues of corporate loans compared with bank financing could tip the balance in their favor. Another factor that could pave the way for greater acceptance of corporate bonds and securitization is the credit boom. «Banks have been competing with each other in corporate lending. Some companies may have overborrowed, while some banks might not have priced their risks properly. This year, we could see companies getting squeezed as borrowing costs go up,» Manos said. Companies could also decide to take the opportunity to diversify their sources of funding. Manos said mortgage-backed securitization operations would benefit companies with large portfolios of properties, among them telecoms operator OTE, electricity utility PPC and the banking sector.

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