Asian investors have learnt many things since the Asian financial crisis. But perhaps most important is that it is vitally important to be able to buy at the bottom. There are few countries in the world where assets have bottomed as much as Greece. The stock market is down 84% from its pre-crisis highs, economic output has shrunk by 25% and unemployment has soared.
And yet, just whispering on the breeze is the suggestion that the smart money may be coming back into the country. Reports of hedge funds buying up Greek bonds have been doing the rounds for some time. Equity investors have pushed the Athens Stock Exchange index up 16% this year. And now Asian direct investors are looking at the hard assets the government is privatising.
“Greece has undergone five years of recession and at the same time a lot of long overdue structural reforms have taken place,” says George Koulouris, deputy CEO of Marfin Investment Group (MIG). “We are nearing the point where Greece has reached the bottom in terms of its economic performance. And usually that is the time people want to look into investing.”
Asian companies will be cheered by the example of Chinese shipping and ports giant Cosco, which bought half of Athens’ Piraeus port in 2009 and has turned it around, both operationally and in terms of profits. Now others are looking at similar transactions.
“There are certainly Asian corporates and investors looking around,” says Koulouris, who adds that Cosco’s investment into the Piraeus port has been performing very well. “Asian investors are looking at a number of other privatisations announced by the government, in real estate, regional ports and regional infrastructure. It is definitely an expectation that a number of these assets will end up in the hands on non-European and Asian investors.”
The major concern for direct investors into Greece is whether the country stays in the euro or not. It is a macro call, almost impossible to hedge. “If we are staying in the euro, then there is a fundamental mispricing of Greek assets,” says Koulouris. “But if you make the assumption that there will be a Greek exit, then you need to see what happens on the day after such an event. Given that it is unchartered territory, no one can make that assumption. So yes, it is a binary decision. “
Direct investors from Europe would also be concerned about the well publicised difficulties of doing business in the country. But again, Koulouris maintains that five years of painful reforms are now bearing fruit. “The reforms have made Greece much more competitive, labour is more flexible and the public finances seem to be getting in order,” he says. But, he admits “it all hinges on our still being an active member of the eurozone and that we will not be forced by political or other developments to have to exit the union”.
Marfin’s financial performance amply demonstrates the difficulties investors could face. The company recently sold Olympic Airways to rival Aegean Airlines for a cash-on-cash loss of around €100 million. It bought the assets and brand of the airline three years ago, in one of the first privatisations undertaken by the post-crisis government.
“The valuation of any investment made in the last three years would not make sense now,” says Koulouris. “But in today’s environment, I would argue, that we are near a point where there is only one direction that assets can trade... up.”
This is because the remaining businesses in Marfin’s portfolio in the healthcare, tourism and food sectors are performing well. The healthcare business for instance has increased operating profits by 300% in the last year, as it moves into areas previously undertaken by the Greek state. The share price of the group as a whole is up threefold in little over five months. And yet it still trades at an 80% discount to net asset value. That discount, due to uncertainty in the market over Greece remaining in the eurozone, is difficult to manage. “It is very, very hard,” says Koulouris. “But at the macro level there are things we just cannot control.”
