August 28, 2013 6:06 pm

Eurozone eyes holding company to manage Greek €20bn real estate sell-off

Eurozone officials are considering a big overhaul of Greece’s sputtering privatisation programme that would move most of the state-owned real estate intended for sale into a Luxembourg-based holding company managed by foreign experts.

The plan – contained in a report submitted by the European Stability Mechanism, the eurozone’s €500bn rescue fund, to Greece’s bailout lenders – is aimed at cutting through the bureaucracy that has hampered Athens’ privatisation agency, the Hellenic Republic Assets Development Fund, which has struggled to meet its targets.

It could be politically explosive in both Greece and in the eurozone’s northern creditor countries, which have vowed to provide Athens with debt relief sometime in the next 12 months.

Under the plan, the new holding company would be empowered to manage the real estate portfolio independently from Greek government interference, including raising cash against the portfolio’s value to either pay down government debt or improve some of the lots, many of which are now unattractive to private buyers.

The Greek government would still retain control of the real estate, however, and it would be up to Athens to ultimately decide when to sell.

“By relying on appropriate private sector development, improved asset transparency, better servicing and greater flexibility on timing, it opens the market to a wider group of investors and ensures a better value than a sale conducted in the context of depressed market values and political uncertainty,” according to the study, parts of which were seen by the Financial Times. Its existence was first reported by the Greek weekly ProtoThema.

The ESM was commissioned to submit the report by eurozone finance ministries earlier this year as the “troika” of bailout lenders – the International Monetary Fund, European Central Bank and European Commission – were forced again to cut the privatisations’ projected revenues.

When Greece was given a second bailout 18 months ago, troika officials estimated privatisations would raise €9.2bn by the end of this year and €19bn by 2015. Under a July review, those projections were slashed: only €3.2bn is expected this year and €8.7bn by 2015.

Greece’s current real estate sales programme covers up to 80,000 state-owned buildings, tourist facilities and plots. Only a handful of deals have been completed because of problems with uncovering ownership, zoning rules and obtaining clearances from the archaeological service.

One recent tender on the island of Rhodes was cancelled after the privatisation agency discovered a four-star hotel had been illegally built on beachfront property. According to documents accompanying the ESM report, all the real estate intended for sale could be worth “anything above some €20bn”.

“The main point of the report is to maximise the value of state-owned real estate assets in Greece by making them more attractive for investors,” said an ESM spokesperson.

The prospect of handing over the assets to a foreign-based holding company has already raised hackles in Athens, however. Far-left Syriza, the main opposition party, called the plan “a blow to national sovereignty and dignity”.

Privatisations are the only way Athens can cut its own debt burden in a large-scale way; without a quick improvement in the programme, many troika officials, particularly at the IMF, believe Greece can only be returned to sustainable debt levels if EU bailout lenders accept losses on their existing loans to Athens.

But the issue of forced bailout losses has become a main issue in the German election, with the opposition Social Democrats accusing Angela Merkel’s government of misleading voters about the future costs of the Greek rescue. Wolfgang Schäuble, German finance minister, this week insisted Berlin would not accept writedowns on bailout loans.

People involved in the report’s drafting said it was being pushed aggressively by Finland and had the strong backing of the IMF and ECB, with the commission more sceptical.

Both the EU and the IMF have vowed that an overhaul of the privatisation programme must be part of the next review of the Greek programme, due to begin next month. A senior official at the Greek privatisation agency said Athens had put out tenders for advisers to fine-tune the holding company plan, but advocates said they were concerned the move was an effort by Athens to stall the proposal.

One EU official said the ESM report would be “fed into” the troika’s review of the privatisation programme when it begins next month.

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