Half of ASE-listed firms would be ineligible under new terms

One in two listed companies would not qualify to enter the stock market if they tried today, according to the new criteria. Out of 23,000 enterprises in Greece fewer than 500 would make it into the Athens market. If the already listed ones were to submit applications to enter only 135 would go through, while only 68 would make it out of the non-listed firms, a survey by Hellastat has found. The research firm examined the chances Greek companies have of entering the stock market, whether they are listed or not, according to the new criteria about the level of assets and earnings. The analysis revealed that the majority of companies are eliminated due to the earnings criterion. What is more impressive is the results about listed companies. Hellastat excluded credit sector firms (banks and insurance companies) and analyzed the remaining 309 stocks in the market today. These companies, according to the assets level criterion, are split into two categories: – The big ones, i.e. those with assets in excess of 15 million euros. This category includes 231 enterprises. However 122 of them do not fulfill the earnings criterion, leaving just 109 that could have been listed again. – The small ones, i.e. those with assets between 3 and 15 million euros. This category includes 78 stocks, but 52 of them fail the earnings criterion. This means that only 135 companies could get listed again today, if we except the credit sector stocks. This is a rather sad finding, as listed companies should have adjusted the level of their assets. Notably, most «rejected» firms belong to the small-companies category. The criterion which has eliminated most of them is that of earnings, which should have received more attention by firms in the interest of their shareholders. The picture among non-listed companies is no better. Hellastat reached the conclusion that the stock market could not possibly accept the vast majority of companies after the recent adoption of the new market regulations. Out of the 22,962 non-listed companies examined with at least three years of operation, excepting credit sector firms, no more than 414 companies showed assets over 15 million euros, from which only 134 also satisfy the criterion for total earnings of 12 million euros in the last three years and with earnings at a minimum of 3 million euros per year. With some multinationals also excepted, the number falls to 68, most of which are companies in various economy sectors, mainly coming from traditional domains such as food and wine (14 companies), tourism and entertainment (nine companies), and chemicals and plastics (eight companies). The Hellastat analysis excludes the subsidiaries of multinationals, which usually choose to list only the parent or a holding company (such examples are Vodafone, Papastratos and Kotsovolos, whose parent companies from abroad recently decided to delist their Greek subsidiaries from the Athens market, as well as the big pharmaceutical firms). The analysis also excludes the subsidiaries of domestic companies, listed or non-listed, where the orientation toward listing the parent company is also seen, and certain state corporations such as DEKA or EETT, which reach the figure of 66 and cover the fiscal criteria for listing. Christos Yiannakopoulos, the research and development director of Hellastat, says the number of potential candidates is even smaller, as out of the 134 enterprises only 91 fulfill the earnings before tax criterion (EBT), with the remaining 43 covering the alternative criterion of earnings before interest, taxes, depreciations and amortizations (EBITDA) of 16 million euros for three years and at least 4 million euros per year, although nine of them actually showed losses in their pretax figures last year. Further doubts about the number of companies really eligible to enter the stock market are created by factors such as: – The adjustment of net worth and earnings to the possibility of some significant notes in the certificates by the certified accountants. – The need for a tax inspection before a company gets listed. – The forthcoming application of the International Financial Reporting Standards (IFRS) also to non-listed companies. The second set of criteria, meant to facilitate the listing of smaller companies under some terms, applies to 2,119 firms with minimum capital of 3 million euros in 2004. From all these companies only 12 percent (258 of them) meet the EBT criterion for profits of 4 million euros in three years and at least 1 million euros per year, while just 4.2 percent (88 companies, 10 of which suffered pretax losses in 2004) satisfy the EBITDA criterion for profits of 6 million euros in three years and at least 1.5 million euros per year. From the total of 346 enterprises qualifying from this category, 65 are subsidiaries of foreign or domestic companies. Few but good candidates The stock market’s decision about the criteria is obviously aimed at cleaning up the market, securing the protection of investors and the operation of the capital market for the concentration of funds by healthy and profitable companies. Despite the limited number of firms which satisfy the listing criteria, the new regulation seems headed in the right direction, since the Hellastat analysis shows that the «candidates» have particularly positive features, especially if one compares them with the picture that listed companies show for the 2002-2004 period according to the IFRS. For instance, net margin is estimated at 8.5 percent for big companies and at 9.8 percent for the smaller ones, against 6.14 percent for the listed firms. Similarly, in the last three years small companies have shown total capital yield that is three times as much as that of listed companies (10.12 percent against 3.36 percent), with big companies enjoying twice as much (7.81 percent). Apart from greater profits, high returns seem to stem from their high borrowing, as asset yield rates prove. Furthermore, the velocity of circulation of assets in the non-listed companies came to 0.9 in 2004 against 0.56 for listed firms, showing there is scope, if not a need, for additional capital.