AS GREECE’S politicians prepare for their latest cap-in-hand trip to Brussels on Thursday, some of its largest companies are heading for the exit.
Coca-Cola Hellenic, a subsidiary of Coca-Cola which owns 23 per cent of it, is leaving Greece. It is opting for a Swiss domicile and a listing in London where it will join the FTSE 100. Valued at €5.7bn (£4.6bn), the bottling company accounts for one-fifth of Athens Stock Exchange’s market capitalisation, which has shed 85 per cent since 2007. In this period, Coca-Cola Hellenic has fared less badly, losing 37 per cent.
Chief executive Dimitris Lois said that the moves make “clear business sense,” citing shareholder complaints about tax rates in Greece, which can be as high as 45 per cent. But this is not the whole story: Coca-Cola Hellenic will pay 25 to 27 per cent corporation tax in 2012; corporation tax is 21 per cent in Switzerland. The logic for the move is also to access cheaper corporate debt.
Following downgrades to Greek sovereign debt, rating agencies also downgraded Greece’s corporations, making it more expensive for them to raise capital. Standard & Poor’s rate Coca-Cola Hellenic’s debt three notches above junk; with €950m debt due to mature within the year, the move ensures that the company receives better refinancing terms.
Coca-Cola Hellenic will enjoy a more stable economic and political environment. According to Lois, the move will “give [the company] greater recognition among international investors, will increase the liquidity of [the] stock and improve access to the international equity and debt markets”. Its regulatory statement said the move would “better reflect the international character of Coca-Cola Hellenic’s business activities and shareholder base”.
Chief financial officer Michalis Imellos points to a divergence in fundamentals: “When you have more liquidity… you can trade closer to the fundamentals.” Greater liquidity helps stem volatility. In the last year, the standard deviation of the stock’s daily movements has been 3 per cent, underscoring its volatility (compare that with 1 per cent of the FTSE 100).
The company already has listings in New York and London, but the Greek listing is dragging on its equity. Traders will wonder whether moving its listing will free it from a “Greek discount”. But George Zois of Exotix thinks that the shares, which have risen by 30 per cent in the last year, are still expensive. He says that the price-to-earnings ratio – around 20 times earnings – is “overly rich,” and he would not buy at this level. He argues that the de-listing will trigger sales from Greek mutual funds, putting downward pressure on the stock. He also questions whether it will continue returning surplus cash to shareholders (which it has done to avoid holding excess cash on its books and paying tax on it) when it moves to London.
Coca-Cola Hellenic’s move speaks volumes about the attractiveness of doing business in Greece. Recently, the country’s largest dairy producer Fage switched Greece for Luxembourg. Is this the start of an exodus? The negative impact may be limited for Greece: Coca-Cola Hellenic earns 95 per cent of its revenues from exports, not all companies are as internationally focused, and are more likely to stay put.
What lessons can policymakers draw? Since restructuring its debt, Greece’s debt-to-GDP ratio has ballooned and could hit 164 per cent in 2013 according to analysis by the International Monetary Fund, the European Central Bank and the European Commission. Its competitiveness has been decimated. Perhaps the lesson is that you cannot resurrect the economy by inhibiting business through tax hikes. One thing is clear: if the fizz doesn’t return to Greece soon, this won’t be the last pop they see.