Greece: Survival of the leanest
17 February 2014 | By Jonathan Ames
1 July 2013
16 July 2013
6 December 2013
4 November 2013
7 June 2013
The Greek crisis is continuing, and while privatisation work is providing some business for lawyers, it comes at rock-bottom rates
At the depth of Greece’s debt crisis – when the euro was about to be chucked into the Aegean and the central bank was poised to press the print button on resurrected drachmas – German populist newspapers and MPs adopted the sensitive approach. “Sell your islands,” screamed an early March 2010 report in Germany’s biggest daily, Bild, quoting two right-wing politicians.
Why not a fire sale to flog the odd uninhabited island and decaying ancient monument, reckoned Josef Schlarmann, a senior member of Chancellor Angela Merkel’s Christian Democrats, and Frank Schaeffler of the Free Democrats. In the end, they didn’t quite get what they wanted, but they’ve come close.
The Greeks – under the cosh from the renowned bully-boys of the global financial crisis, the troika of the International Monetary Fund, the EU and the European Central Bank – legislated in summer 2011 to create the Hellenic Republic Asset Development Fund. It is a body that is effectively supervising the sale of the country’s family silver in a bid to placate the money men in Berlin, Brussels and Washington.
The Greek fund – a “societe anonyme”, of which Hellenic Republic is the sole shareholder with a share capital of €30m (£25m) – is not a public entity and is governed by private law. On its books are prize gems such as Athens’ Hellinikon Airport, chunks of property on a variety of islands including Corfu and Rhodes, infrastructure projects such as Hellenic Motorways and the water supply and sewage businesses in Thessaloniki and the capital, as well as corporate assets such as the Public Gas Corporation and the Hellenic Football Prognostics Organisation.
All very embarrassing and humiliating for the Greek national psyche, but potentially a feeding frenzy for local business law firms – monster privatisation programmes always are. Surely.
Well, not exactly, caution local lawyers. While everyone is getting a bite of the fig, the fig isn’t that sweet and it certainly isn’t very nutritious. “The privatisation programme constitutes some work for law firms to an extent,” explains Dryllerakis & Associates senior partner John Dryllerakis, “but not necessarily the biggest. The question is whether that is enough to fill the gap resulting in the drop in normal business that existed before the crash.”
The answer to that poser is an unqualified “no”, maintains the managing partner of another leading local law firm. Catherine Karatzas of Karatzas & Partners says the fund will instruct local practices but “its bidding process is dominated by fee rates. With the current environment in Greece it would be very difficult for any public servant to instruct a law firm that was more expensive because of a belief in the quality being higher. That argument would just not succeed”.
Karatzas says the fund’s parsimony means it will generally instruct local firms – the list on the Hellinikon Airport deal includes Avgerinos & Partners, C Papacostopoulos & Associates, Degleris & Associates and Fortsakis Diakopoulos Mylonogiannis & Associates – because their fee rates are two to three times cheaper than international competitors.
“That’s why all the local firms are getting some of the privatisation work, but none of them is really that keen to get the instructions,” says a resigned Karatzas.
On occasion, English and US global firms are called in – London-based Watson Farley & Williams got the nod on the airport deal. But more often the global firms act for the buyers in the mass sell-off programme. All the usual suspects have been involved, say the local players, with London magic circle firms Clifford Chance and Freshfields Bruckhaus Deringer along with Baker & McKenzie, Cleary Gottlieb Steen & Hamilton, Dentons and Shearman & Sterling named as being widely active.
However, even when buyers reach for global firms, those practices in turn will often bring in local support.
“They will generally instruct Greek firms,” maintains Karatzas, “because there are numerous issues of local law with which they cannot deal themselves. Greece is a small market and the global firms don’t have a presence, apart from those specialising in shipping – and they haven’t penetrated the wider Greek market.”
Despite being crucial to the plans of the Greek government and their international lenders to get the country back on its financial feet after years of poor productivity and economic recession, the privatisation programme, complain lawyers, is dragging far too slowly. Dryllerakis claims the pace of the sales is slipping well behind even the fund’s own fairly relaxed schedule.
Nonetheless, Dryllerakis warns against dismissing the privatisation programme on the grounds that it is not generating big fees initially.
“In most cases,” he says, “a privatisation is not made simply for a private investor to operate an existing business. The idea is that the new owner will develop the business, will finance it, will make the necessary modernisation and development. The main point of the privatisation programme is to attract new investors to Greece, who will develop business further, by making investment, by increasing personnel numbers. That is why that programme is important.” And that is why, ultimately, Dryllerakis maintains, the selling the family silver will lead to more lucrative work down the road for Greek law firms.
Better than expected
The irony around the privatisation programme – increasing workloads for significantly reduced fee rates – reflects the wider picture across the Greek business law sector.
The consensus view is that business law firms in general have seen decreasing revenues throughout the global financial crisis and Greece’s subsequent debt traumas.
How badly individual firms have been affected depends on specialisation. Those focusing predominantly on real estate work will have seen nosediving revenues, while litigation specialists are maintaining fairly buoyant workflows and incomes. Likewise, debt collection specialist firms will have experienced increasing instructions, but if they are paid on the basis of a percentage of funds collected, then they may get the feeling they are spinning their wheels to go nearly nowhere.
“Firms certainly suffer from the problem of slow payment of fees,” says Dryllerakis. “But considering how bad the economic crisis has been in Greece, it its not as bad for lawyers as some might assume.”
Karatzas agrees the Greek legal sector is trying to keep its collective chin up. “Rumours suggest that most firms are hopeful,” she relates, “but they are still very stressed. For us, 2013 was not a bad year. We have a lot of work, but we get paid more slowly and the fees are not as high as they used to be.”
Lawyers claim that firm personnel movements are not compiled or officially published in Greece, so discussion of the health of practices relies exclusively on speculation.
That said, Gus Papamichalopoulos, the partner heading the energy and infrastructure department at Kyriakides Georgopoulos, claims local firms have “maintained a general sense of optimism throughout the difficult years for the Greek legal market. By and large, there is the sense that lawyer staff has been maintained at the same, pre-crisis levels.” Indeed, it is widely agreed that firms have been reluctant to make lawyer redundancies, preferring to cut costs in any other way possible.
“In our case,” comments Papamichalopoulos, “we not only managed to maintain lawyer staff, but to increase the number of lawyers. This was accomplished through more efficient management of costs.” He claims the firm is the largest in the local market with 112 lawyers on its books.
Local lawyers point out there were considerable amounts of banking work in the jurisdiction last year, generated by significant recapitalising and market consolidation. Indeed, the Greek banking sector is considerably slimmer than it was pre-crisis. There are four “systemic” banks – Alpha, Eurobank Ergasias, the National Bank of Greece and Piraeus Bank – along with a tight group of very small institutions that are either for sale or destined to remain independent.
Karatzas, whose firm specialises in banking work, says there are hopes that Eurobank will be privatised.
“It was the only systemic bank that wasn’t able to raise the 10 per cent of private capital needed to be private rather than being capitalised by the stability fund,” she explains. “So we’re looking forward to more private funds coming into the Greek banking system and further recapitalisation.”
Papamichalopoulos agrees that banking “drove a lot of legal work”. Other practice areas piquing lawyer interest include regulation in the energy and transport fields, along with tax and employment issues. However, lawyers remain pessimistic over project finance, which they say is flat owing to the difficult situation around local banks.
Papamichalopoulos also points to a gradual return of private equity funds to the Greek market, albeit at an “exploratory level”. Nonetheless, he remains hopeful. “There is indication – even at this early stage in the year – that 2014 will bring about a renewed interest in Greece, especially in the infrastructure sector, which will result into more robust investment.”
Greece has been on a hugely painful economic and social journey over the last few years. And to be fair, local law firms have suffered far less than many others in the wider economy. And while the prospect of bailing out of the eurozone has receded significantly, there are still several doses of strong medicine to swallow.
At the beginning of this month, Germany’s finance ministry suggested that a third loan was headed Athens’ way, albeit a comparatively small chunk of change of some €10 to €20bn. Maintaining lawyer numbers at Greek law firms will become increasingly more difficult if another round of austerity is on the cards.
Greek private lives
One of the most prominent manifestations of the “troika” 2010 bail-out deal for Greece was the creation of the Hellenic Republic Asset Development Fund (HRADF). Launched in July 2011, it is effectively a sweetshop of state goodies put up for sale in a bid to drive down years of sovereign debt.
It was initially tasked with drumming up some €50bn by next year, but Greece being Greece, both the timetable and the target have slipped. The fund’s executive director, Andreas Taprantzis, recently told the Bloomberg news agency that the figure is now a more conservative €11bn, and the fund has an extra year to achieve it.
Taprantzis told the agency that so far the HRADF has clinched €4bn worth of deals, but has only collected €2.6bn of that committed cash.
“The privatisation programme is lagging behind,” explains Panayotis Bernitsas, founding partner at M&P Bernitsas Law Offices. “But it’s equally true that a rather large number of Greek law firms are involved in the privatisation process, definitely a larger number compared to the past.”
However, that has not translated into milk and honey for the leading Greek business law practices. “Unfortunately, the privatisation programme is not boosting local law firms,” says one senior local lawyer. “That’s due to the very low rates and capped fees that the privatisation fund is imposing on Greek law firms. Some of us have accepted one or two mandates just for the sake of maintaining a good relationship.”
There is also a whiff of resentment brewing over the role of the global firms in the market. There are suggestions that the fund instructs on occasion the big English and US firms, and, according to one local commentator, they are getting “decent hourly rates” for the privilege. However, the lawyer points also to rumours that “payments are always late”.
A small taster survey of the type of privatisation instructions doled out to local Greek firms shows a variety of work available.
Zepos & Yannopoulos acted for:
- Dogus Group in its indirect acquisition of control of the Marina Gouvia at Corfu, Marina Zeas at Piraeus and the Marina Lefkas at Lefkas island through the acquisition of 51 per cent of management company Medmarinas.
- Dogus Group through D-Marine Investments Holding in the formation of a 50:50 partnership with Lamda Development, resulting in the indirect control of the Flisvos Marina.
- DEPA – the Greek gas supply company – on the drafting of its pre-privatisation vendor’s due diligence report.
- Private equity fund Strategic Initiatives in its bid in the international tender organised by the Agricultural Bank of Greece, resulting in the acquisition of a controlling stake in Dodoni, one of the leading Greek dairy producers.
- Chinese conglomerate Fosun Group in its participation in the international tender organised by the development fund for the transfer of a controlling stake in the Football Prognostics Organisation.
- Germany’s Sudzucker in its bid to buy the country’s biggest sugar manufacturer, Hellenic Sugar Industry, along with its Serbian and Cypriot subsidiaries from the Agricultural Bank of Greece.
Kyriakides Georgopoulos acted for the development fund in:
- The privatisation of the Greek Public Power Corporation.
- The restructuring and privatisation of LARCO Mining & Smelting, a major European ferronickel producer and exporter.
- The privatisation of key assets including airports, beaches, hotels, golf courses, marinas, condominiums, ski resorts, natural springs, quarries, storage and logistics centres ancillary to public highways owned by public law entities of the Greek government.
Lambadarios Law Firm has acted for several US-based funds and Dolphin Capital for the privatisations of the sale and leaseback of 28 assets held by the Greek government.
Dryllerakis & Associates has acted for:
- The fund in the a sale-and-lease back deal of 39 state-owned buildings and the privatisation of the Hellenic Horse-race Betting Organisation.
- Russia’s Gazprom in the privatisation DEPA, the state-owned natural gas distributor.
- Azerbaijan’s Socar in the privatisation of 66 per cent of DESFA, the state-owned natural gas transmission system operator.
- Greek luxury hotel business Lampsa in several real estate and tourism-sector privatisations.
- A bidder in a joint-venture scheme to privatise 37 regional airports around Greece.
|Rank||Firm||Partners||Other lawyers||Total lawyers|
|2||Zepos & Yannopoulos||20||32||52|
|6||Karatzas & Partners||7||21||28|
|8||Bahas Gramatidis & Partners||5||19||24|
|9||Dryllerakis & Associates||9||14||23|
|10||Kelemanis & Co||4||18||22|
|11||C Papacostopoulos & Associates||3||17||29|
|12||Fortsakis Drakopoulos Mylonogiannis & Associates||NA||NA||18|
|17||Moussas & Partners||3||10||13|
|18||Avgerinos & Partners||3||4||7|