Greek nightmare makes poor ad for asset sales
Greece’s wretched experience has been a poor advert for asset sales as a tool to cut state borrowings, but others in the eurozone high debt club are much better placed to make a decent fist of privatizations.
Italy, Spain and Ireland, all of which are grappling with towering debt burdens, have the luxury of time, at least relative to Greece, and can structure privatization deals to maximize their impact and bide their time on pricing.
And though all of these countries have felt the heat from the markets, Greece has become almost synonymous with the deep crisis at the heart of the eurozone, which has hollowed out its appeal to investors.
“It is not clear Greece has the luxury of doing anything in an optimal way; they are basically burning the furniture just to get by,» Bill Megginson, Professor of Finance at the University of Oklahoma, told Reuters. «But other countries, especially where the crisis seems to have abated a bit, like Italy and Spain, they could and they probably will.”
Greece came up with plans for asset sales to convince its lenders it was serious about reforming its uncompetitive economy and also to raise funds to pay down its debt mountain.
But the EU and IMF, which pushed Greece for bolder and more detailed plans as to how it would deliver on its promises, have become increasingly frustrated with the country’s repeated failure to meet targets.
Despite a reluctance to sell assets in such poor market conditions, Greece — which aims to raise 19 billion euros ($25 billion) from privatizations by 2015 — has begun ramping up its efforts, including inviting bids for state-owned natural gas company DEPA and the management rights to its Olympic broadcasting complex.
It plans to put stakes in betting monopoly OPAP and refiner Hellenic Petroleum up for sale by May, Greece’s chief privatization official said.
But its tight timeframe and ambitious targets, already scaled back from 50 billion euros, suggest it will struggle to meet its price expectations.
“There is a big risk … the long-term strategy for the businesses and getting a fair price for the taxpayer falls by the wayside,» said David Parker, Emeritus Professor of Privatization and Regulation at the Cranfield School of Management. «We are certainly going to have a risk that the government sells off industries without really thinking about the long-term implications.”
Countries with the time to get state-owned companies in better shape before selling them, with good management and improving profitability, will get better prices.
Ireland plans to raise 3 billion euros from the sale of state-owned assets, including the energy business of its Bord Gais utility. But while it also agreed to the sales as part of its EU/IMF bailout, it is not under a strict timetable and has said it won’t be pushed into fire sales.
Spain has already delayed the privatizations of state lottery Loterias and the country’s two biggest airports due to the economic climate.
“It is a balance; do you be opportunistic in terms of picking up offers, or do you actually have a considered plan that will give you a few years to figure out how you increase the value of the organization before you sell it off?» said James Close, head of transaction and advisory services to government at Ernst
