Greek fire sale? Privatization proves more complicated

ATHENS, Greece — As the debt-laden Greek government tried to nail down the skeleton of a third bailout with its European partners earlier this month, the rumor mill here buzzed: legendary investor Warren Buffett was going to buy a Greek island and actor Johnny Depp reportedly had already bought one. Buffett denied it, Depp hasn’t confirmed it, but the rumors hit a nerve: Parts of Greece will soon be on sale — and many Greeks are reasonably wary.

Many hyperbolic headlines around the world have made it sound as if Greece’s impending fire sale might result in even the Acropolis getting snapped up any moment. But that’s not likely; the process is far more complex than that.

During the marathon 17-hour July 12 summit with its eurozone partners, Greece agreed to transfer many Greek assets, including a 35 percent stake in Athens International Eleftherios Venizelos Airport, 37 regional airports, stakes in several public utilities, real estate and ports, into an independent trust fund in order to raise 50 billion euros (or about $55 billion) to help pay off the Greece’s 300 billion-plus debt load. About 20 billion euros of the privatization project is expected to come from the recapitalization of the country’s troubled banks. The rest of the assets will be monetized and stakes will be sold gradually, say investment analysts.

The details have yet to be worked out and will invariably be an important part of the talks between Greece and its creditors that began on Tuesday to secure the nation’s third bailout.

Greeks who work for many of the institutions that are on the privatization auction block, or soon might be, however, are understandably worried — steady employment, cushy pensions, and wages are at stake. 

Workers of Greece’s Public Power Corporation (known as DEH in Greece) that serves 7.4 million customers across the country, for example, have already seen a 60 percent drop in wages after a 49 percent stake in the utility was sold in the stock market more than a decade ago. Further attempts to sell off bigger stakes in 2011 were met by stiff resistance from the utility’s union, which cut off electricity in parts of the country in protest. A future sale of another chunk in the company is not likely to go over well with the company’s union.

 “We don’t know what we are any more, private employees or public employees,” said a high-level manager of a power facility in Kozani, a town in northern Greece, who has worked for the company for 22 years and spoke on condition of anonymity for fear of repercussions. “In many ways, it might be a relief to be sold, but it all depends on who buys us, of course.”

It’s not the first time in the five-year debt crisis that privatization is on the table. In 2011, Greece’s creditors demanded that Greece raise 50 billion euros by selling state assets by the end of 2015. The properties to be sold came under the auspices of the Hellenic Republic Asset Development Fund, which will likely be folded into the new trust to be established by the latest agreement.

Since then, however, Greece only managed to raise 3.2 billion euros (or $3.5 billion) — 94 percent below the target.  Few are expecting miracles this time around either.

“Greece has a bad track record in implementing these privatization programs,” said Pierre Chartres, investment specialist for retail fixed income for the London-based M&G Investments. “It’s very difficult for any Greek government, but especially one run by left-wing extremists and populists, to sell its assets. I think it is looking highly unlikely that they will be able to go through with this, at least in the short run.”

A former board member of the real estate wing of the development fund was also skeptical. “The probability of Greece realizing the sale of the public assets listed to raise 50 billion is something like 30 to 35 percent,” he said in a phone interview, declining to use his name because of the sensitivity of the matter. “I don’t want to say I don’t believe it at all, but it is not realistic because of the political obstacles.  We have a government that does not believe in privatization.”

Indeed, although privatization is now back on the table, when Prime Minister Alexis Tsipras came into power in January on an anti-austerity platform, he pushed back against it. One of the deals that was underway — a 1.2 billion euro sale of 14 regional airports to the top bidder, a German company, Fraport, the operator of Frankfurt’s airport — stalled as a result. Whether the deal to buy airports in popular tourist destinations, including Santorini, Mykonos, Corfu and Cephalonia, among others, will be completed is unclear, according to Fraport’s most recent quarterly report issued earlier this month.

The uncertainty unsurprisingly troubles administrative and operational employees at many of these airports. “We don’t know what will happen, or which of us might be affected, since the details and the specifics have not yet been determined,” said an administration official at the airport of the Ionian island of Cephalonia. “No one has said anything, for the time being.  We’re all uneasy.”  The small airport served 400,000 passengers last year.

How the airport deal — or even the entire privatization project — will play out is anyone’s guess, especially now that the staunchly anti-austerity Tsipras has agreed to privatization as part of a larger bailout deal.  He essentially performed a 180-degree pirouette at the Euro summit on July 12 by accepting the idea as a condition of a third bailout. He did win a major concession at the 11^th hour, however; instead of setting up supervision of the fund in Luxemburg, as Greece’s European creditors wanted, it will be managed out of Athens. This, in theory, will give the Greek government more control to press any buyers to hold jobs steady, maintain pensions and increase investment at the companies in question.

But even so, one high-level manager at one of the assets likely to be privatized still sees obstacles ahead. “The government is under pressure to proceed quickly.  But it has always been difficult to implement privatization here because of political, legal and social constraints,” he said, not allowing the use of his name of where he works for obvious reasons. “Managers are afraid to act lest they be accused of misconduct or acting irresponsibly by prosecutors. They’re also worried about selling at record low prices.”

Indeed, the entire privatization process to date has been fraught with controversy.  The management of the development fund’s board has gone through personnel shuffles and firings. Earlier this month, the state brought criminal charges against three former board members dealing with a May 2014 sale of 28 state-owned real estate assets. They have been accused of failing to look out for the best interest of the state.

Some observers, such as Athens-based independent analyst and investor Timos Melissaris, however, point to a new reality: This time the privatization program is more flexible in that the assets placed under the fund are not expected to be sold immediately, but monetized gradually, to avoid appearances of a fire sale at vastly undervalued prices. “This time the selling mechanism will be different,” Melissaris said.

Even the International Monetary Fund in its debt sustainability report (PDF) released on June 26 acknowledged that the project’s targets had to be scaled back to a more realistic 500 million euros a year because of sensitive political and social pressures.

“The language has been purposefully vague. The Eurogroup knows this is a tough pill for the Greek government to swallow,” explained M&G’s Chartres. “A fire sale is not a good idea for anyone.”

For at least one mayor, Yiannis Konstantatos, 37, of Argiroupoulis/Hellenikon, a municipality along Athens’ southern coast, however, the successful sale — and ultimate development — of one of Greece’s real estate assets — the old Athens airport known as Hellenikon — would be a good thing. A 7 billion-euro urban renewal and waterfront project to be built on the 3.5-kilometer-stretch where the old airport used to be. But municipal objections raised last year blocked the project. The former mayor had wanted to turn the area, which is about twice the size of New York City’s Central Park, into a park. The municipality’s new politically independent mayor elected last September, however, supports the project, which would include a marina, hotels, housing and a commercial mall. He gives it a 70 percent chance of completion.

“We need the investment. Our community needs jobs,” he said in an interview in his office. “What’s there is rotting. It’s nothing but cement and concrete. It could become a mini-Disneyland.”

It might be too early to tell if Konstatatos’s dream will become a reality. An email request for comment from the developer, Lamda Development, which can still legally back out of the deal, was not returned.