Greek companies test bond waters as exit risks fade

Hellenic Telecommunications Organization SA (HTO), Greece’s second-biggest company, is seeking redemption with investors, albeit at a price.

The Athens-based phone company, 40 percent owned by Deutsche Telekom AG (DTE), presented on Jan. 30 its highest interest rate to attract buyers to the lowest-rated offering from a southern European issuer in at least seven years. The company, known as OTE, sold 700 million euros of five-year bonds paying 7.875 percent, hailing the transaction as “a vote of confidence”.

“It’s a clear positive, and a good sign for other Greek companies,” said Vassilis Kararizos, deputy director of equities at Proton Bank (PRO) in Athens. “But the yield shows that even as euro exit concerns have fallen, there’s still plenty of work and risks ahead for both Greece and the corporates.”

In October 2009, the then-government of George Papandreou revealed Greece had misled its euro neighbors about the state of the nation’s finances and the size of its deficit. Greece’s 10- year bond yield has dropped 20 percentage points since reaching almost 31 percent in May, as investors drove up borrowing costs in the interlude between two elections that jeopardized the country’s survival as a euro member. The 10-year rate is now 10.81 percent, half the average of the past year.

‘Careful Steps’

“Market access is coming in careful steps as the coupon suggests and is still quite selective, but the field is being set for quality Greek companies,” said Thanassis Drogossis, head of equities at Pantelakis Securities SA in Athens. “It is a positive sign that not too long after sovereign worries subsided, debt markets are gradually re-opening for Greek borrowers like OTE.”

OTE’s bond comes a month after Titan Cement Co. (TITK), Greece’s biggest cement producer, issued 200 million euros of 8.75 percent 2017 bonds. The telecoms company is paying more than the 7.25 percent on securities sold in 2011 that come due next year, according to data compiled by Bloomberg. The average yield on bonds of companies in the euro area’s peripheral countries such as Greece, Spain and Italy is 2.9 percent, down from as much as 5.48 percent in June, Bank of America (BAC) Merrill Lynch’s Euro Periphery Non-Financial index shows.

Demand at this week’s OTE sale outstripped supply, with investors bidding for 1.9 billion euros of notes, Chief Executive Officer Michael Tsamaz said in a statement. The company, 10 percent owned by the Greek government, is rated Caa1 by Moody’s Investors Service, seven steps below investment grade.

S&P Rating

Greece had its credit rating raised to B- by Standard & Poor’s in December, the highest since June 2011. Moody’s Investor Services rates Greek debt at C, while Fitch Ratings has a CCC rating for the country’s debt.

Locked out of markets since April 2010, the country is the only nation to receive two bailout packages from the euro area and International Monetary Fund as public opposition to pension and wage cuts derailed the pace of promised economic reforms.

Loans to Athens were frozen in June as opposition to fiscal austerity grew. Greece held two elections in which anti-bailout parties gained, with Antonis Samaras emerging as the head of a three-party coalition in favor of staying in the euro while seeking more time to meet targets for narrowing the budget deficit as the economy shrinks for a sixth year.

Bailout Package

Euro region finance chiefs agreed in December to pay Greece 49.1 billion euros through March after revamping the nation’s second rescue. Greece received 34.3 billion euros in December, including funds for its banks, and 9.2 billion euros in January. It is due to get about 5.6 billion euros in two separate payments in February and March. The IMF is contributing a separate amount to Greece of about 3 billion euros this quarter.

The disbursements highlight improved confidence in the government’s ability to implement budget cuts and market-opening initiatives outlined in the nation’s international aid program. Policy makers gave the Samaras government two extra years until 2016 to meet budget-reduction targets. By the end of March, Greece needs to set three-year expenditure ceilings for ministries and finish plans to lower state employee staffing levels by 2015.

The bailout also foresees that the country’s bank recapitalization will be completed by the end of April. Departing executives from Hellenic Financial Stability Fund, the recapitalization fund, said Jan. 30 that this deadline may be extended. The country’s banks need fresh funds after taking losses on their holdings of Greek government bonds.

Samaras Support

“A look at the polls shows that Samaras is building political capital,” said Lefteris Farmakis, an analyst at Nomura International in London. “He needs to keep up the momentum. He can’t drop the ball on keeping financing uninterrupted and dealing firmly with union protests.”

Public sector workers walked off the job Jan. 30to support state-hospital doctors, who are staging a 24-hour strike to oppose hospital mergers and job cuts, according to a statement posted on ADEDY’s website. Trains, buses and suburban rail services were affected in the latest disruption to public transit following a nine-day subway strike that Samaras halted by emergency decree on Jan. 24.

John Mauldin, president of Millennium Wave Advisors LLC, who recently visited Athens, said Greek officials and investors share wary optimism, and the next six months are key.

“I heard that term everywhere: Wait six months,” Mauldin, told Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance” on Jan. 30. “They’re worried about social unrest all up and down the food chain.”


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