ECONOMY

Heavy indebtedness will lead many listed firms to declare bankruptcy or be taken over

Many listed companies are feeling the pressure of excessive debt to banks. The banks themselves are under pressure to keep the credit flowing but have begun to realize that providing credit to enterprises with limited survival chances only heightens their risk and debases their portfolio. It is true that the banking sector has been too forgiving to businesses which did almost nothing to redress their company’s financial situation. Some sectors have been decisively hit by factors beyond their control, such as unfair competition and the absence of protectionist measures. One such sector is textiles, where the situation is desperate as companies have had to compete with cheap imports from Third World countries. Already, a longstanding firm, Hellatex, renowned as a producer of synthetic yarns and with considerable export activity in the past, was recently forced to stop production and concentrate on imports and trading instead. At the same time, the country’s biggest textiles group, Klonatex, is now forced to suspend its production as it lacks capital. The tough negotiations currently taking place between Klonatex’s boss, Thomas Lanaras, and the creditor banks, with the aim of refinancing the 126.5-million-euro debt of group subsidiary Naoussa Spinning Mills, are just one sign of the times. It is taken for granted now that many sectors of business activity are in a permanent state of decline for various reasons. All those years very few efforts were made to boost competitiveness, despite the enormous sums drawn from the stock market in the period 1999-2001. The reasons are to be found in the Greek economy’s structural weaknesses and the lack of flexibility by business people. This inertia has now brought upon us the judgment hour we are witnessing. In many cases, the only way out is through restructuring. For many companies, however, their finances are in such a bad state and their production levels so low that there is little margin for any initiative. Some listed firms will inevitably go bankrupt. Their heavy debt, their inability to draw cheap capital from the stock market or even a bank loan, their lack of competitive advantage which a modern production plant or a big market share would probably render this development almost inevitable. There is some company restructuring taking place among larger groups with enough liquidity and easy access to cheap capital sources. This, combined with the fact that the overall restructuring of the Greek economy creates opportunities in new sectors, has created a sort of action in which large business groups are taking the initiative. The move by the Hellenic Technodomiki construction group to launch a hostile bid for Rokas, which has become active in the energy sector, is an example of the criteria that will determine the new business strategies, which will certainly be aggressive. Several midsized companies are expected to become takeover targets. The continuing lethargy of the Athens Stock Exchange, the need to improve competitiveness and reduce operating costs, the need for investment combined with the difficulties in getting the necessary working capital will oblige these firms to merge with bigger ones. Their defenses are too weak to put up any sort of resistance. Many small-caps are heavily indebted: These include industrial firms such as Akritas, Shelman, Allatini Ceramics, Tzirakian Profil, Kordellos Brothers, Paperpack-Tsoukaridis, Veterin, Kalpinis-Simos and Iktinos, as well as commercial and infotech firms such as Space Hellas, LogicDis, Promota and Images and Sound. These are prime merger targets, assuming that they are worth acquiring.