ECONOMY

Vulture funds circle over Greece

Recently on a Greek island in the Ionian Sea, a luxury 70 room hotel was sold for 2.5 million euros. The buyer is an investor described in the market as being a distress fund.

According to market sources, the investor landed a good deal since the construction of the hotel in 2009 cost 7.5 million euros. If one takes into account the value of the land it is built on, then its total value reaches the ten million euro mark. The new owners paid just a quarter of this amount.

These sorts of examples are numerous in Greece. As the recession deepens, tens of real estate assets and businesses are in the radar of potential investors.

However, this particular category of investors is not very well known as they normally have a low profile.

The reason? They buy assets from owners under pressure from creditors, which means they need money quickly.

This is why some people label distress funds as vulture funds.

The most well known example of a distress fund being active in Greece is undoubtedly in the case of Wind Hellas.

The mobile phone company, which had loans of 1.8 billion euros, was recently acquired for 780 million euros by six large investment funds.

This decision, made in agreement with the company?s creditors, however, kept the company in business since it was no longer in a position to meet financial obligations.

Spyros Trahanis, manager at Oxygen Capital, said that distress funds provide solutions when the creditors to the business in strife – normally banks – can no longer do so.

?Banks usually avoid providing these sort of solutions which almost always involve a haircut on loans provided and they don’t want to end up with assets they don’t know much about,? he said.

“Additionally, banks don?t want to send the wrong message to the market. If it was so easy for a bank customer to restructure his debt then everyone would ask for this.?