It is a remarkable turnaround. Only a year ago, Greece was toxic territory for investors. A debt restructuring had just wiped out more than €100 billion ($130 billion) in government bonds. The stock market stood at one-tenth its 2007 levels. A political earthquake had the country poised for a chaotic election.
But now the markets have turned. Months of relative calm in Europe—and the pressure to go somewhere, anywhere, for yield in a low-interest-rate world—has investors taking another look. The Athens stock market has rallied more than 80% in the past 12 months, with the Athex Composite Index rising 0.8% on Tuesday. Greek government bonds have been on a tear since June.
The latest sign: Hedge funds and private banks are seeking out bonds issued by Greek companies, which are tapping credit markets in increasing numbers. Among the buyers are York Capital Management, Dromeus Capital, LNG Capital and CQS LLP. Third Point LLC, run by Daniel Loeb, is starting a hedge fund focused on buying Greek assets.
The Greece bulls say the threat that the troubled country will quit the euro zone—or be pushed out by Germany—has all but passed, and the huge depression in asset prices during the crisis has left choice buying opportunities. European Central Bank President Mario Draghi's pledge last summer to do "whatever it takes" to save the euro was a critical milestone for many investors. On Tuesday, Fitch Ratings upgraded Greece one notch to single-B-minus—still deep in junk territory—saying the chance of a euro exit has "receded."
For one thing, the recent surge in asset prices is tied, to some degree, to monetary easing by central banks. Beneath that, Greece remains a mess. Its economy has already shrunk more than 20% since it first entered recession in 2008. Repeated rounds of austerity have deepened the downturn. The European Commission forecasts a contraction of 4.2% this year. Unemployment is at 27%.
Both Greece and its European rescuers say the bailout program is generally on track, but the European Commission said Monday that fresh rounds of cuts might be needed in 2015 and 2016, testing the patience of a populace already under deep strain.
If it cracked and, for instance, precipitated new elections, the flow of money in might become a fast flow of money out.
"We're still avoiding Greece at the moment," said Nicola Marinelli, a portfolio manager at Glendevon King Asset Management in London. "If there was some weakness in the market, Greek bonds would struggle to perform."
The gains are also fragile. Hedge funds and some other investors are moving on Greece, but most larger asset managers are staying put. The spate of bond issuance by relatively large corporations isn't duplicated by credit to households and small businesses. Bank lending to them remains below where it was even a year ago. Those interested in Greek corporate bonds are mainly U.S. and U.K. hedge funds and private banks, according to people with knowledge of the debt sales. That is a fairly small pool. Still, there are pockets of demand.
"We're getting a consistent message from investors that they are growing increasingly comfortable with Greece and are more willing to take a look," said Jason Bruhl, head of European high-yield syndicate at Citigroup C +0.74%in London.
Commercial refrigeration and glass-bottle producer Frigoglass SA FRIGO.AT -1.40%this week issued €250 million of bonds, with a yield of 8.25%. In total, Greek companies have raised an equivalent of about $2 billion from debt sales this year, according to data provider Dealogic. There were no Greek corporate-bond sales in the same period last year.
"Our placement is in the context of other placements that have happened recently and probably more placements will follow us, so this is a sign of confidence and that people have a more optimistic outlook," Frigoglass Chief Executive Torsten Tuerling said. Louis Gargour, chief investment officer at credit hedge fund LNG Capital, another fund that has invested in recent Greek bonds, said telecoms, banks and shipping companies, among others, are attractive because they are yielding more than similarly rated firms in Group of 10 countries. "There is 25% to 40% potential upside in terms of price. Some of the less understood, more hairy opportunities such as subordinated bank debt have 50% to 60% potential upside," he said.
One fund manager said some asset-backed securities, such as senior securities backed by residential mortgages, are a good opportunity. Greece is also seeking to sell state assets, a long-delayed project that may be picking up. Last week, a Canadian pension fund, the Public Sector Pension Investment Board, bought the airport unit of Hochtief AG, HOT.XE +0.69%a German builder. The unit has a 27% stake in Athens's airport, as well as five others. The Greek state owns 55% of the Athens airport.
And some investors are kicking the tires of Greek banks as a bet on the country's renewal. Many banks, gravely wounded by the 2012 default on Greek government debt, needed to be rescued. Several banks are now seeking to sell shares to private investors to raise capital levels. The Hellenic Financial Stability Fund, the state entity set up for the bank rescue, hopes to lure private investors to participate by offering free warrants that allow investors in the future to buy the stability fund's own shares in the banks. In essence, private investors that buy bank shares now get a free chance to buy more later at low prices if things go well.
"These warrants grant an option for the forthcoming postcrisis recovery," says Achilles Risvas of Dromeus Capital, a Greece-focused hedge fund. "This is an arrangement that remind us of the heads we win, tails you lose coin game."
Source: The Wall Street Journal
