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Economy // Critical Eurogroup today

The critical meeting of Eurozone Finance ministers is due to be held today at 15:00 CET and will seek to resolve open questions related to the 2nd Greek aid package. According to an IMF spokesman, IMF director C. Lagarde will also participate in the discussions. The presence of the Greek PM in Brussels in addition to the participation of IMF managing director has raised expectations that a final deal might be sealed today. In a similar tone, Austria's finance minister expressed optimism that momentum points to the approval of the deal on Monday since “everyone feels the pressure this time to deliver”. Among the issues that are yet to be resolved are: 1) ways to bring Greece’s debt by 2020 towards the target 120% figure (or at least 122-123%) from c129% as forecast by the latest IMF debt sustainability report (e.g. through participation of central banks in the debt restructuring, ECB foregoing profits made on Greek gvt bond portfolio, lowering interest rates on bilateral loans from 1st support package etc.); 2) ways to ensure closer monitoring of the adjustment program; and 3) set-up of an escrow account to ensure debt servicing.

Banks // Press reports on bank capital needs

According to an article published over the weekend, the estimated EUR 6bn funding gap is mainly attributed to the larger requirement regarding the domestic banking system’s recapitalization.  In particular, the EUR 40bn set aside from the country’s aid facilities could come short given a deeper NPV loss estimated due to lower coupons (c.75%) and stricter accounting policies that may increase the losses. Nevertheless, we note that as per the latest legislated funding requirements concerning the new aid program a total of EUR 23bn were earmarked for the system’s capital needs. The Bank of Greece is expected to have completed its capital requirement report incorporating the Blackrock assessment by the end of this month, while by mid-March the regulator will have completed an comprehensive report on the system’s overhaul that may lead to the identification of viable and non-viable banks, the latter of which would be required to be resolved through the separation of their asset bases into “good” and “bad” banks.

Economy // PSI+ platform set up

Press reports are indicating that the domestic exchange along with Bondholder Communication Group have set up an auction platform that will be used for the upcoming Greek debt swap. The web-based platform will provide the Government real time info on the PSI+ take up, as well as serve as the venue to hold the bond holders GM to resolve on the matters of the swap and CAC activation. Press reports are indicating that CACs are soon to be legislated into Greek law to ensure full take up in the bond swap. The offer is expected to be launched by Wednesday or next Monday the latest and last for a two-week period.

Economy & Politics // Parliamentary vote today

Saturday the cabinet agreed on latest details about spending cuts worth EUR325mn, with no surprises, we believe. MPs are expected to vote on these measures today. Some color is incrementally given by the press on upcoming changes to be included at the new tax bill, mainly direct tax increases for household income and entrepreneurs. No color given for corporate taxation changes. Separately, Sunday’s Kathimerini is suggesting the FinMin is very likely to relinquish his position, following the completion of all pending issues next month. While no potential successor is mentioned, we do not expect changes on financial policies.

Economy // Eurogroup to meet convene on Monday to decide on Greek funding  Following yesterday’s conference call where the Greek aid program was discussed, the Greek finance minister stated that the country has lived up to the required expectations concerning the legislative work and identification of the required fiscal measures. Nevertheless, he mentioned that the EU partners went beyond the strict numerical aspects and were discussing the options with regards to the political commitment to push for the required reforms and program implementation even post the expected elections. Press reports are indicating that EU ministers are debating the sufficiency of commitments of the current parties that support the government given their poor standings in recent polls. Nevertheless, any further developments on the matter of initiating the PSI+ offer and securing the country’s future funding will be determined in this coming Monday’s Eurogroup meeting.

CCH // Feedback from the conference call; cost inflation more manageable in 2012  Overall a positive conference call with the management highlighting the improved price/mix which recorded a sequential improvement during the course of 2011. In particular, price/mix which increased 9% in Q4 2011 on a currency neutral basis, is seen by mgt covering the input cost inflation in 2012. This implies that organic net revenue per case should be up c4% (weighted average inflation 5% across CCH’s markets), we believe. High-single digit raw material cost increase will be again the headwind for CCH but COGS inflation is more manageable than in 2011. The slight increase (by cEUR100mn) in the 3-year cumulative FCF guidance seems to imply an improved outlook based on our understanding. The management admitted that low visibility remains in many core markets and pointed out that Q1 2012 is likely to be soft owing to the adverse weather conditions. With regard to the capital return, there was no newsflow as to the potential amount and more will follow in Q2. We believe a capital return of EUR0.25-0.30 per share will be in line with last year’s payout and will maintain CCH’s gearing well within its target.

Privatizations // Govt transfers stakes in Elpe, OLP to the privatizations fund

Yesterday, the Greek State transferred through OTC transactions stakes it owned in Hellenic Petroleum and Piraeus Port Authorities to the Hellenic Republic Asset Development Fund (TAIPED), which is overseeing the State’s asset sale program. More specifically, it transferred a 27.10% stake owned in Elpe, following a similar move earlier in the year. In effect, the privatizations fund now has full ownership of HR’s stake (35.48%). Similarly, it transferred a 23.1% stake in OLP, retaining a majority 51.04% stake. Note that the Govt has stated that it would be willing to sell its total stakes in the companies.

Economy // Press on final PSI+ framework

According to press the PSI+ initiative formulation has been completed. The final proposal is suggesting a 50% reduction of outstanding private sector Greek debt, while the remaining 50% will be settled with 2-year EFSF paper for 15% and the remaining 35% will be new Greek bonds extending from 10 years to 30 years with an average coupon of 3.7%. The new Greek debt will also be tied to GDP performance, hence any outperformance on the part of the Greek economy, the bonds holders shall be rewarded with either a higher coupon or a shorter maturity. The final NPV loss from this undertaking is estimated to stand at 72%. Furthermore, the government is looking into preparing required legislation to retroactively introduce CAC’s to be triggered at 51% should the final participation be deemed low. To enhance debt sustainability, state loans estimated to be between EUR 12 and EUR 15bn will also be restructured under the same prism, further reducing Greek debt by at least EUR 6bn. Finally, the ECB is also expected to engage in the restructuring process by transferring its holdings to the EFSF at its cost base presumably at EUR 35bn, in which case Greece receives the benefit of an additional EUR 13bn debt alleviation. We note that the country is expected to launch the actual tender for the PSI+ on February 15th.

Banks // Latest on bank recapitalization

Press reports are indicating that as part of the system’s recapitalization the state will be taking up common shares with a 5-year restriction on voting rights. In addition, existing shareholders will have to cover at least 10% of the capital shortfall determined by the Bank of Greece in its report expected at the end of this month. Shareholders will have until August to cover their respective share of the shortfall, while bank management teams will have to have submitted comprehensive business plans by the end of March outlining their capital initiatives.

Economy // Outline of measures in draft MoU

The new draft MoU sets out the outline of targets and measures for the period 2012-2015. It appears that the deadline for Greece to bring its deficit down to 3% of GDP has been extended by one year (to 2015 vs 2014 under the previous program). However, the level of fiscal consolidation required in the next four years remains challenging with the govt asked to specify cEUR14bn spending cuts of which cEUR3.2-3.3bn in 2012. Measures included in the package are cutbacks in the minimum wage (-22%), reductions in supplementary pensions (-15%), reductions in the wage bill in state enterprises, 15K layoffs through merger/closure of state entities in 2012, elimination of tax benefits, unification of VAT rates, abolition of permanent employee status for state-owned enterprises (DEKO) etc. The new set of measures are likely to result in an upward revision for the level of recession in Greece (-2.8% in 2012 as included in the 5th IMF review).

PPC // Noise over future litigations, but we focus on market and company restructuring

Press reports (source: daily newspaper Kathimerini) provides limited clarity over a sensitive issue on PPC’s investment case that has dragged for some time and refers to public service obligations (PSOs). Referring to the annual compensation for the recovery of expenses resulting from the provision of PSOs, a domestic supreme court ruled that ministerial decisions have not been complying with European regulation. Based on the same source, PPC runs significant litigation risk. We feel investors’ focus remains on generation market-specific and internal restructuring-related issues.

Privatizations // Updated program; EUR19bn target by 2015, 5 privatizations in H1 2012

On privatizations and asset sales, the govt reportedly set a new target for EUR19bn revenues by 2015. The initial target for EUR50bn revenues remains but without a specified timetable. The asset sales of OPAP, gas operators DEPA/DESFA, Hellenic Petroleum and water utilities EYDAP and EYATH remain higher up on the agenda and are expected to be concluded in H1 2012 while state lotteries, regional ports and airports and Egnatia motorway are diarized for the second semester of the year. The govt intends to transfer all assets (with the exception of Trainose, Elvo and EAS) to the Hellenic Republic Asset Development Fund (TAIPED), which is overseeing the State’s asset sale program and seek advisors for 13 asset sales (2012-2013) by end of March.