The Greek Markets wait with bated breath
Shipping is a capital intensive business and new funds are always required. The traditionally conservative Greek shipowners are becoming more adventurous in their methods of raising money, and are increasingly looking towards the international capital markets.
Greek Shipping Finance
During 1997 and the first eight months of 1998, Greek shipping companies raised close to US$ 1,000,000 in the high-yield debt or so-called "junk bond" market. Many more bond issues were in an advanced state of readiness when investor confidence collapsed in the autumn of 1998. Since then, the depressed state of the shipping market has killed international demand for such high risk issues. In addition, concerns raised over the ability of certain issuers to meet their obligations in respect of their bonds make it unlikely that US investors will return rapidly to this market.
It may seem ironic therefore that, at this stage, the Athens Stock Exchange has proposed new rules to make it easier for Greek shipping companies to obtain a listing on the Greek Stock Exchange. Traditionally, it has been extremely difficult for shipping companies (other than ferry operators) to list on the Athens Stock Exchange, and there are only a handful of shipping companies presently listed on the exchange. However, the proposed changes appear to reflect greater investment demand both in Greece and internationally. During the last 18 months, listed Greek ferry companies have successfully accessed the equity markets, to raise funds primarily to upgrade their fleets in order to satisfy the more stringent safety requirements and in preparation for the increased competition expected as a result of the abolition of cabotage rules. In particular, four of the largest companies in the sector: Minoan Lines, Strintzis Lines, Attika Enterprises and ANEK, with current market capitalisations ranging between $210-$670 million, have successfully raised further funds in the Greek, and in the case of Strintzis Lines, the international markets. In addition, according to press reports, a considerable number of other shipping companies have already notified the Athens Stock Exchange of their intention to list their shares once the new proposals are implemented.
The key advantage of raising equity rather than debt is that it will entitle the relevant company to reduce its gearing, hopefully making it easier to borrow additional funds at lower rates to fund further fleet expansion or upgrading. The consequences of becoming listed are dilution of ownership of the company by the existing shareholders and the adoption of procedures as to the operation of the company which are intended to protect the interests of the company’s new investors. Increasingly, owners of large private companies in Greece are recognising that the benefits outweigh the disadvantages.
Athens Stock Exchange rules
The Athens Stock Exchange’s new rules, which are undergoing a period of consultation, are expected to be brought into force by the spring of 1999. The key proposals are that any shipping company wishing to be listed on the Athens Stock Exchange must satisfy five key criteria (in addition to the usual criteria for listing):
- The company’s Head Office should be situated in Greece and subject to Greek law, although the company may directly own ships under foreign flags or hold shares in other shipping companies owning ships under foreign flags.
- The company to be listed must own at least seven vessels of minimum capacity of 20,000 tons each. The value of the ships must be confirmed by valuations obtained from international valuers recognised by the Greek Chamber of Shipping and Capital Market Authorities.
- The state of the company’s vessels must be monitored by a Ship Register recognised by the Greek State, and is required to have "as high a ranking as possible" in international maritime circles.
- The vessels must be insured against hazards related to fire, acts of war, loss of income and pollution.
- Finally, the companies must submit the ship registry certificates and together with their application for listing, certificates confirming the value of the vessels, and their insurance contracts, as well as copies of the ships’ nationality certificates and certificates of ownership and charges.
Alternative listings
A listing on the Athens Stock Exchange is not the only alternative for a shipping company wishing to access the international equity markets. A listing on the Athens Stock Exchange may be effected in conjunction with a listing on an international stock market, such as the Luxembourg Stock Exchange, the London Stock Exchange or one of the US principal securities markets (New York Stock Exchange, NASDAQ or AMEX).
Listing on the Luxembourg Stock Exchange is the least demanding option and the one providing the lowest degree of liquidity. The London Stock Exchange provides a greater degree of liquidity and is more prestigious, and, accordingly, most of the major Greek international issues have included a London listing (most recently DEPA and Panafon). However, listing in London represents a more demanding option in terms of costs and disclosure requirements than Luxembourg. On the other hand, a listing on the New York Stock Exchange or on NASDAQ imposes even more burdensome disclosure requirements and entails higher costs of listing. The only Greek company listed on the New York Stock Exchange is OTE, although, it is rumoured that the National Bank of Greece will seek a listing in the near future.
In theory, it would be possible for a company to seek international investors with only a listing on the Athens Stock Exchange. However, it is more usual to effect the listing through the creation of a depositary receipt programme and to list the depositary receipts on a foreign exchange. This is exactly what Strintzis Lines did with its international offering in the summer of 1998, where its GDRs were listed on the London Stock Exchange.
Depositary Receipts/ADRs
A depositary receipt programme involves the issue of certificates known as ADRs (American Depositary Receipts) and/or GDRs (Global Depositary Receipts which are usually sold outside the US) which are in registered form and represent rights of their holder to the underlying shares in the issuing company. The underlying shares are deposited with a depositary bank (usually the Bank of New York or Citibank) which issues the depositary receipts which are capable of being traded through clearing systems without the underlying shares themselves being transferred (thereby ensuring that the international investor does not suffer any local settlement risk, and providing the international investor with the convenience of clearing with a dollar denominated security, notwithstanding that the shares are denominated in Drachmas). It is the depositary receipts, rather than the underlying shares, which are listed on the London or New York markets.
A secondary listing of ADRs on one of the US exchanges is one alternative method of accessing the US equity capital markets. However, the more normal route for medium-sized Greek or European issuers is to combine a listing on their local market with a listing of GDRs and/or ADRs on the London Stock Exchange and a private placement in the US to certain large institutional investors (called "qualified institutional buyers" or "QIBs") under Regulation S and Rule 144A of the US Securities Act 1933 (examples of companies that have followed this route are DEPA, National Bank of Greece, Alpha Credit Bank and Strintzis Lines). This restricted placement does not require the issuer to satisfy the full US disclosure and on-going reporting requirements, and enables it to establish a profile in the US and to start to build up a US institutional shareholder base which could subsequently be tapped with a full US offering.
In conclusion, the proposed changes to the Rules of the Athens Stock Exchange should enable shipping companies to access both the domestic Greek capital market and, through it, the European/international markets. Once the machinery is in place, it will be up to the companies to show investors that they represent a good investment - the markets wait with bated breath!
Mark Lloyd Williams and George Barboutis, Norton Rose, London and David Baker, Norton Rose Consultants O.E., Piraeus. Norton Rose acted as international counsel to Strintzis Lines on its US$ 100 million international equity issue in the summer of 1998 which included the issue of GDRs and ADRs which were listed in London and a private placement in the US under Regulation S and Rule 144A of the US Securities Act and has been actively involved in advising on a number of other shipping company international public offerings, private placements and Section 144A bond issues.
This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
