PICs easy prey for mergers

Three of the 25 listed portfolio investment companies (PIC), with market values totaling about 540 million euros, will soon be a thing of the past. Alpha Investment, the biggest of them all, with a market capitalization of 342 million euros, is being absorbed by its parent company, Alpha Bank, and Marfin Classic, with a current market value of 117 million, will be incorporated into Comm Group. Investment Development Fund, with a capitalization of 73 million euros, is to follow, with its absorption by its parent EFG Eurobank Ergasias. The exit of the three, which follows that of Ergo Investment – one of the oldest and largest – a few months ago, evidently deals a further serious blow to the sector, reducing its total capitalization by about one-third. Accumulated losses The stock market crisis of recent years has meant large losses accumulating for PICs. The failure to distribute dividends, traditionally the strongest pole of attraction for investors, combined with the sharp market downturn, has led PICs to being traded at excessive discounts, that is at market prices much lower than the actual internal values, which result from the daily evaluation of their investments. Nevertheless, the sector looks like maintaining a certain standing, due to the continued presence of National Investment, Commercial Investment (of the National and Commercial banks respectively), and of Hellenic Portfolio Investment, which is to absorb the respective arm of Piraeus Bank. The combined asset value of these three exceeds 600 million euros and their stance is seen as largely determining the future of Greek PICs. If they were to follow the way of absorption, many believe it would amount to a coup de grace for the sector – and a further blow to the low liquidity of the Athens bourse, for which PICs are important fund channels. Besides the Progress Fund, which also belongs to EFG Eurobank, Proton is another major player among PICs, being an umbrella manager for three other funds (Exelixi, Eurodynamics and Arrow) with a combined asset value of 172 million euros. Alpha Trust controls Andromeda and Asset Manager Fund, with assets of 80 million euros. A certain amount of interest has arisen concerning the moves of Deutsche Bank, which recently failed to absorb New Millennium in an attempt to tap the discount, but has now set its eyes on P&K, of which it controls a 30 percent interest – along with a significant share in Nexus. Large discounts The distortion of large discounts and the inability to correct excesses are seen as the factors which caused the absorptions, as parent companies strove to take advantage of the discounts. Financially weakened, the Aspis Group was the first to swallow its investment arm, effecting in this way an indirect share capital increase. Many strongly disputed the rationale of the Capital Market Commission’s approval of that merger, considering the entire process as a peculiar deviation. If Aspis was the initiator, EFG Eurobank Ergasias was the driving force behind the trend, announcing the absorption of Ergo Investment and Investment Development Fund, which created a sensation. After Aspis, EFG’s move was seen as reasonable and largely expected. It was certainly particularly beneficial for the bank, as in an especially bad period for the capital market, it gave a significant capital boost, also tapping important tax incentives. At the time, the group controlled four PICs. The tax incentives and boosting the bank’s capital base were the main – if not the only – reasons for EFG Eurobank’s absorption of its two PIC subsidiaries, although they were listed last among five factors sited. Investors were told in March 2003 that the chief reason for the merger was the dire situation of the stock market and that its senior staff did not see an improvement coming any time soon. Ironically, the Athens Stock Exchange’s general index, as if to belie the gloomy view, began an ascent at the end of March which reached more than 50 percent. Alpha Bank’s decision to absorb its PIC was also motivated by tax incentives and a desire to boost its capital base. Marfin Classic’s case is somewhat different in that it is not being merged into a bank; Comm, a media concern, was a former subsidiary of the Marfin group. Marfin Classic must be feeling a certain degree of disappointment as the firm registered the largest losses among its peers in the 2000-2002 period.

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