Solving the investor’s dilemma
The Public Power Corporation’s (PPC) flotation on the Athens Stock Exchange (ASE) last week was a disappointment for the investment public. In the first three days of trading, its share price fell 7.21 percent, recovering only part of the losses in the following two sessions. It closed at 11.88 euros yesterday against a flotation price of 12.70 euros. By contrast, the few other small companies floated last week met with a much better response. This contrast poses a difficult dilemma for the investor: Should he/she choose a big virtual monopoly such as PPC, which is floated at a low valuation, or a small firm with an uncertain future? There is no harder dilemma for anyone who wants to kill the stock market. PPC is a strong monopoly indeed, but with big problems. In reality, it was never an enterprise. It was a state organization which had not managed to produce a balance sheet or budget in decades. Its investments and procurements were larger than those of OTE Telecom and could be described as the realm of intransparency and corruption. The government often borrowed in the name of the corporation, wishing to avoid showing an increase in the public debt. PPC borrowed for the budget’s spending requirements. It was a tool for employment and development policy since its founding in the late 1950s, sometimes at a cost to the consumers and sometimes at a cost to taxpayers, and in many cases to both. But the time came when the government had to deregulate the energy market – which took effect last February – and gather the resources necessary for reducing public debt. With its listing on the bourse, PPC is forced to adjust to a more efficient mode of operation, something that was fully necessary. This is how the government thinks and the reason why the flotation was done in a hurried fashion, leaving many loose ends. On the other hand, the average investor, considering PPC a relatively safe bet, hastened to put his/her money on it. The public offering was oversubscribed and the managers of the issue said interest was strong. When trading began, however, PPC’s share fell below the IPO price within the first hour, leaving everyone wondering who sold shares for less than when they purchased them just a few days earlier. The market is not irrational; there are simply things not immediately apparent. For instance, those that bought share-convertible bonds at a discount had effectively bought the shares at a lower price than during the IPO. Also, a part of the issue that was enthusiastically subscribed by foreign hedge funds had been purchased at some discount. They, too, seized the opportunity to sell at a small but certain profit. The tumbling price may have then caused a certain degree of panic among others who sold fearing even greater losses. The problem is that such practices hit the credibility of the market as a whole and create a pessimistic climate. The danger is that something similar will happen with the Agricultural Bank. The government has announced a program of partial privatization for the bank, for which it is promoting measures aimed at setting its capital base on a healthy footing. This will include money raised on the bourse, from the issue of share-convertible bonds, from institutional investors and from a strategic investor that will assume its management. The only question for which there seems to be no answer is in what way the Agricultural Bank will be set on a healthy footing when it is not really a bank but a breeding ground for the cadres of farming cooperatives. The serious question also remains as to whether PPC today can rival the productivity of similar utilities elsewhere in Europe. The quick rehabilitation of state organizations through the stock market will have no lasting effect if it is simply a refurbishing of their external facades. When it is done simply in order to raise funds and does not touch upon their mode of operation and the efficiency of their business, it is bound to be a temporary solution. Reforms are essential in order to ensure the retirement rights of present and future generations, they stressed.
