FOCUS: Greece May Raise EUR50B From Land Sales, But Challenges Abound
-- Plan to raise the funds through 2015
-- Government could have more than EUR250 billion in property
-- Public opposes outright sales
-- Listed holding structure could have investor appeal
By Nick Skrekas
Of DOW JONES NEWSWIRES
ATHENS (Dow Jones)--Greece's government faces daunting challenges in its efforts to raise an eye-popping EUR50 billion from privatizations over the next four years, but experts say the goal is reachable for the debt-laden Mediterranean country.
The key, they say, is for the government to exploit its extensive holdings of state-owned property--which by some estimates total more than a quarter of a trillion euros--through a raft of innovative financing techniques.
But to do so, the government must also cut through swathes of bureaucratic, political and legal issues that have stymied past government attempts to make use of the state's vast land holdings.
"Greece can achieve more than EUR50 billion in land privatization alone but only if we do it right," said Elena Panariti, a parliamentarian with the ruling socialist, or Pasok, party, and a former World Bank economist specializing in property rights.
That means institutional reforms are needed "to cut through the current moribund maze to be able to extract the proper value," she added.
With the encouragement of its international lenders--the European Union and the International Monetary Fund--Greece has committed to raise a massive EUR50 billion in privatization revenues through 2015.
That represents 22% of gross domestic product and probably more than double the amount all Greek governments have raised from privatizations in the past two decades combined.
But Greece also has no choice. While that privatization target isn't technically part of the EUR110 bailout signed by Greece in May 2010 with the EU and IMF, it is nonetheless seen as a linchpin for the country's ongoing austerity and economic restructuring plan to work.
The underlying aim is for Greece to cut its mountainous debt. At the end of December, the Greek government owed more than EUR340.3 billion to its creditors--that is more than one-and-a-half times Greece's economy--something that has kept investors on edge with many expecting Greece to either restructure that debt or default on it.
But apart from reducing the debt, a wide-scale privatization plan would also bring other rewards. Among them, it would boost decelerating foreign direct investment--which fell last year to a meager EUR1.55 billion--and provide a tonic for Greece's crisis-hit economy, now stumbling through the third year of a grinding recession.
Estimates for the value of Greek public land vary wildly from between EUR120 billion to the blue-sky estimate of EUR270 billion. But these aren't robust estimates because no one really knows. The state has never identified all of its land holdings, nor tried to estimate their value.
As it is, experts say about 40% of public land has been encroached upon and there are other legal and technical issues with another 20% of the total portfolio. For example, whole suburbs in the capital of Athens and important villages in parts of the countryside have been built on land expropriated from the state.
Further, despite years of effort, Greece still doesn't have a unified national land registry--one of the few countries in Europe without one--so there is little clarity on rights and titles in many parts of the country.
Even so, that still leaves a lot of land available and last year the government began cataloging its holdings for the first time.
"If we adopt the conclusions of the ISTAME local think tank, only about 40% of state-owned land is actually free to be exploited," said Aristotelis Karytinos, general manager for real estate at Greece's dominant lender, the National Bank of Greece SA (NBG).
"But it may be feasible to exploit about EUR30 billion in state-owned real estate until 2015," another expert said on condition of anonymity.
To be sure, one problem is public opposition. Recent opinion polls show 66% of Greeks oppose selling off public assets, with opinion already inflamed by the continuing austerity measures imposed by the EU and IMF.
That led Prime Minister George Papandreou last month to appease voter concerns by offering assurances that there won't be any outright freehold sales of land. And more than once, he has said the government will sell no more of Greece's iconic islands--other than those already sold by previous governments.
But even that opposition is surmountable, say experts. One method would be to sell government land on fixed-term leaseholds, say 99 years, after which ownership would return to the state. Such leaseholds currently don't exist in Greece--and some argue their relatively short-term nature impairs the full value of the land--but such laws could be legislated fairly easily.
Another option: limiting outright sales only to land seized by the Greek state through foreclosures which, arguably, have been added to government holdings only in the recent past. Greece's Finance Ministry has already hinted it is looking at that as part of the privatization process.
More innovative, say experts, would be if the state creates a holding structure for its property portfolio--such as a real estate investment trust or special-purpose vehicle--and lists it on local or international exchanges. If the state retains more than 50% of the structure through a public entity, technically it isn't an outright sale if you securitize or list the structure on an exchange. Moreover, the relatively steady income stream of a real estate trust would attract institutional investors.
"The state has a mixed portfolio so they need a mixed strategy," said NBG's Karytinos. "Assets with very secure cash flows are good for risk-averse investors, like pension funds and income-oriented investors, and that would include buildings or properties used by the state itself."
In the final analysis, say experts, the success of Greece's ambitious privatization program depends on the political will of the Greek government.
"It can be fixed quite quickly if there is a serious political commitment and if everyone is on board and working together," said Pasok's Panariti.
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E' un pò lungo, ma è da leggere.
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