Doubts are growing as to whether investor interest shown in bank stakes held by the Hellenic Financial Stability Fund (HFSF) will lead to a successful deal due to the strict institutional framework that was passed a few months ago relating to the Greek fund.
According to the law that was passed in June, in order for the HFSF to proceed with the disposal of shares held in its portfolio it must first turn to the market through open procedures to search for competitive offers. As stated in the law: "The divestment strategy includes provisions, indicatively, for the following: (a) the appropriate competitive bidding processes and the conditions for participation in them, (b) the requirements of transparency and compliance with capital market legislation, and (c) ) the possible disposal methodologies'.
Banking sources tell Business Daily that this obligation, of seeking competitive bids, is the main obstacle to talks being held between the HFSF and Saudi Arabia's sovereign wealth fund Public Investment Fund (PIF) over the acquisition of a 20% stake in National Bank (NBG) which is controlled by the fund. According to the same sources, the Saudis want a direct agreement and avoid participating in any bidding process.
That doesn't mean the deal is doomed. PIF's interest in National is strong, is a move with wider political and geopolitical ramifications and the government has many reasons to hope for its successful completion. However, according to banking sources, in order for this to be done through direct negotiations, a special legislative regulation will have to be passed that will allow the HFSF to deviate from its operating framework.
Parade of investors
With the government working systematically to attract investment and the HFSF having started the disinvestment process amidst a strong Greek economic recovery, investor interest in domestic banks has returned strongly with the HFSF’s bank shares drawing considerable interest.
After 3 rounds of recapitalizations carried out in the period 2012-2015 as well as subsequent capital hikes, the HFSF currently controls 40.39% of National Bank, 27% of Piraeus Bank, 9% of Alpha Bank and 1.4% of Eurobank.
In the past few days, sources said that ION Group submitted a proposal to the HFSF to acquire a 20% stake in Piraeus Bank, while previously there was talk of a proposal being submitted by Helikon fund to John Paulson and Fidelity for the acquisition of their shares in Piraeus Bank.
At the same time, government and HFSF sources confirm that many funds have knocked on the HFSF’s door looking for information on domestic banks and the divestment strategy. This is somewhat of a messy situation as the HFSF has not yet completed its divestment strategy and does not really have any scope for a significant investment move.
Many have warned about the risk of noise being made without any substance, but this does not seem to be the view of the government which welcomes all these investment initiatives.
In search of a divestment strategy
According to the new law on the HFSF’s operating framework, the fund will first have to prepare with the help of an independent financial consultant a disinvestment strategy, which will then have to be approved by the Ministry of Finance. After the strategy has emerged, the fund will be able to take decisions on the disposal of bank shares it owns in its portfolio, in line with the divestment strategy.
In any case, in order to sell shares, the HFSF will need to launch a tender process in which all interested parties can participate.
At this time there is no relevant divestment strategy in order to review any proposals that have been submitted to the fund. In relation to the latest reports, the HFSF issued a statement on Tuesday which said: "In relation to recent publications, any expression of interest received by the Hellenic Financial Stability Fund should be evaluated in full compliance with the HFSF's Divestment Strategy, which, after the recent amendments to the founding law 3864/2010, is still under construction. Pursuant to Article 8 of Law 3864/2010, the Disinvestment Strategy in question, when finalized, will be submitted to the Ministry of Finance for its prior approval."
Regarding the divestment schedule, the law notes that the strategic divestment schedule must take into account the life of the fund, which expires in 2025
Different goals from the HFSF, government, banks and investors
The different objectives of the parties involved should not be underestimated, an element that will create additional difficulties in the crystallization and implementation of the strategy.
The fund wants to sell its shares in the banks at higher prices to maximize its income, investors are pushing for transactions as soon as possible as bank share prices trade at prices well below their book value (P/BV) amidst high expectations for the course of the economy, banks want to cut their ties with the state, while the government also seems to want to take advantage of the situation and the current wave of investor interest.
With an initial share capital of 42.5 billion euros, the HFSF currently shows accumulated losses of 38 billion euros from the bank recapitalizations and the coverage of financial gaps of the banks absorbed by the systemic ones, and seeks to maximize the sale price and money it will recover on behalf of taxpayers.
The current value of the participations of the HFSF in the 4 systemic banks amounts to 1.9 billion euros, of which 1.28 billion is the current value of its position in National Bank (40.39%), 404 million euros in Piraeus Bank (27%), 194 million euros in Alpha Bank (9%), while the current value of its participation in Eurobank (1.4%) is 50 million euros.
In addition, the HFSF expects to recover 1.34 billion euros from recoveries from the 12 banks under liquidation.
In other words, the HFSF is fighting to recover 10% of its initial funds, which will require the maximum possible sale price of National Bank and Piraeus Bank and secondarily Alpha Bank.
From this point of view, the HFSF has no reason to rush: it is better to wait for the turbulence in the international markets to subside, for the sector figures to reflect the upward cycle of the economy, for the country to regain investment grade and for dividend distribution to resume, in elements that may lead to drastically higher valuations and, by extension, the HFSF's income from the sale of its shares in the banks.
The insistence of the HFSF to maintain its participation in banks, with an eye on better valuations, was shown in the recent capital increases of Piraeus Bank and Alpha Bank. Despite the fact that the investment interest exceeded the requested funds, the HFSF insisted, and finally succeeded, in its participation in the capital hikes of the two banks in order to limit the deterioration of its rates.
On the other hand, those that want quick action, emphasize that after such a long and intense banking crisis, the issue is the quickest return of the sector to normality and private shareholders, as is the case throughout Europe. They note that the benefit from the entry of new investors and the full return of banks to private hands will have a multiplier effect both for lenders and the domestic economy. In other words, the broader economy is seen benefitting and that it does not make much sense if the HFSF eventually recovers 10% or 12% or 8% of the funds it used to support the banking sector in the crisis years.
In any case, the framework of the new law does not seem to favor flexibility and speed, but includes many procedures and restrictions, which does not justify optimism for the implementation of investment moves in a short period of time.
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