ECONOMY

In indebted construction sector, it is now everyone for himself as alliances unravel

Most listed construction groups are at the mercy of banks due to their heavy borrowing. Unable to repay their debt installments, construction firms are seeking ways to renegotiate their debt. At the same time, they need capital in order to be able to participate in the new Public-Private Partnership (PPP) infrastructure projects. A case in point is ALTE, whose very survival depends on the willingness of ATEBank (formerly the Agricultural Bank of Greece) to securitize its debt, while another firm, AEGEK, has put expansion plans on hold while negotiating the rescheduling of its debt with banks. There are a number of companies that seem to be near closure and whose shareholders are only hoping for a miracle: these include Empedos and Balafas (whose management allegedly held its last few shareholders’ meetings near the national highway in order to have an easy escape route in case of trouble) and others. Even the strongest, and least indebted, firms often depend on banks, and the required letters of credit to finance their participation in public projects. STEAT, the association that represents the biggest construction firms, remarked in a recent statement on this dependance on banks. Indicative of the state of the sector is that, despite their willingness to participate in bids for PPP projects, very few construction firms are willing to co-finance the projects. Privately they say they are only interested in «building the project,» which means they will limit themselves to being bit players within a consortium. The three biggest players in the sector, the Hellenic Technodomiki-Aktor group, J&P Avax and GEK-Terna, are not facing the same problems as their smaller competitors. However, they are still trying to adapt to the new environment created after the abandonment of the, easily manipulated, mathematical formula method for awarding public projects. They are also trying to win more contracts in a period where such contracts are far more scarce than in the recent past. This need for jobs has led the firms to offer large discounts, even on major projects such as the Kallidromo railway tunnel in central Greece. In that case, J&P Avax, the winning bidder, succeeded in fending off an alliance between Aktor and Pantechniki only by significantly lowering its bid. No more alliances? The managing director of one of the big players claims the abolition of the mathematical formula led to the unraveling of the alliances that manipulated the outcomes of public project tenders. Now, it is everyone for himself and alliance formation is more difficult. He brings up the case of the Thessaloniki metro as an example. The 1-billion-euro project has been temporarily awarded to a consortium comprising AEGEK and some Italian companies. AEGEK bid for the project based on the fact that the Italians, who will undertake the electrical and mechanical components of the project, offered lower prices than Siemens, which had formed a consortium with Aktor. The losing bidders, however, beg to differ as to the cause of AEGEK’s success and have appealed against awarding the project to the AEGEK-led consortium. AEGEK’s choice is expected to impact the four tenders for the Athens metro extension. In three of the four cases, the same four consortiums have been short-listed, creating suspicions that the spoils have been already divided. Construction firms insist, however, that all four projects will be hotly contested. Bids are expected to be submitted in the coming weeks.