Wednesday February 21, 2018


Petros Mylonas, Head of Southern Europe at LXM Group, was recently interviewed for He spoke about LXM's membership of the Athens Exchange, matching global investment appetite with opportunities in the Greek market and provided commentary on non-performing loans sales in Greece. Read the full article here.
Wednesday January 31, 2018


European Banking Authority Stress Test

The Athens Stock Exchange and in particular the Greek banking index (closed 4.3% higher today) moved today to the rhythm of newsflow vis-à-vis Greek bank stress tests, as the main macroeconomic assumptions were leaked to the press. The European Banking Authority (EBA) is expected to release macroeconomic assumptions at 17:00 UK time. Assuming that there will be no changes in the formal announcement today, the assumptions on a first read appear reassuring. However projections related to commercial and residential real estate prices call for a cumulative drop of 16.6%, both under the Adverse scenario, despite the obvious signs of stabilisation especially in commercial real estate prices. Below we provide an overview of the assumptions as referred to in press reports today, along with the assumptions adopted under the 2015 stress test. Importantly, the EBA announcement today will signal the formal commencement of the stress tests next month, with preliminary results expected in mid-April and an official announcement on results expected around 5 May 2018. In terms of comparative data, the stress test conducted in 2015, which consisted of an Asset Quality Review (AQR) and a stress test, resulted in a total AQR impact of €9.2bn and an incremental stress test impact of €4.5bn (post capital mitigating measures), resulting in an overall hit of €13.7bn. Note that we had the opportunity to meet with the four systemic banks last week in Athens, and our read through based on our assessment is that the better macroeconomic backdrop combined with the stronger CET-1 ratio starting point (as displayed below in historical chart), should provide additional comfort that the upcoming stress test will result in a more manageable situation for Greek banks. Source: EBA Interactive Dashboard 3Q 2017 More specifically, we note the following:
  • No AQR will be included in the 2018 stress tests, as the same EBA methodology will be applied on a Pan European basis. Recall that the 2015 stress tests resulted in a new round of recapitalisations in late 2015, with the AQR exercise resulting in a capital impact of €9.2bn and the stress test with an incremental impact of €4.5bn post capital mitigating measures (benchmark CET-I ratios stood at 9.5% under the Baseline scenario and 8% under the Adverse scenario).
  • Leaked stress test parameters: The main assumptions used in the stress test appear more lenient than the assumptions used in the previous stress tests, which should imply a lower capital impact. Note that GDP assumptions under the Baseline scenario call for a cumulative expansion of 7.5% for the next 3-year versus 1% contraction for the 2015 stress test, while the Adverse projects a relative mild contraction of 3.2% versus 6.2% cumulative contraction under the 2015 stress test.
  • There will be no pass or fail: Compared to the 2015 stress test where we had an immediate impact on Greek banks that failed the test, the results will now feed into the SREP ratio. As the Greek programme expires in August and there are still ca. €20bn that have been put aside from the third bailout programme (out of €86bn programme), it would make sense to ask the Greek banks to cover any capital needs before August 2018. However, we believe that this will be purely a political decision that will form part of the wider negotiations on debt relief and a possible precautionary line after the end of the Greek programme.
  • Capital Adequacy: Greek banks have created a strong capital buffer and are in a much better position versus 2015 (refer to chart above).
  • Greek banks have deleveraged from international operations and divested non-core assets, and as a result have met all DG Comp approved restructuring plan requirements since the last stress tests.
  • IFRS-9 seems to be manageable both in terms of magnitude and capital hit in 2018-2020, that is the timeframe for the 2018 stress test exercise. Assuming for conservative reasons a 250bps impact for Alpha Bank, Eurobank and NBG, and a 300bps impact for Piraeus Bank given its lower relative coverage ratio, then the total impact stands at ca. €4.7bn on 3Q17 figures. This translates to a ca. €9.5bn capital buffer for the four systemic banks based on the minimum SREP of 8.75% or ca. €3.0bn on total SREP of 12.25% (note that Piraeus Bank total SREP stands at 13.0%). Importantly, the IFRS 9 impact will be amortised over a five year period and for the purpose of the stress tests a 5% impact will apply in 2018, 15% in 2019 and 35% in 2020. Note that the 2015 Comprehensive Assessment resulted in incremental €4.5bn stress test impact (post AQR and mitigating measures) with much more pessimistic stress test parameters, implying that Greek banks remain well placed in view of the requisite minimum and total SREP ratio.
  • Note that as per latest Bank of Greece data, real estate indices for both commercial (office & retail) and residential have shown signs of improvement.
Source: Bank of Greece  Clearly investors need to remain cognisant of risks vis-à-vis final stress test assumptions and in particular the additional hit for collateral valuations, expected to be adopted by the EBA, but overall we think that the Greek banks are better placed for the upcoming stress test exercise.
Friday January 19, 2018


LXM Group has acted as joint bookrunner in the recent fully subscribed private placement of 12,000,000 Terna Energy S.A. shares, at a price of €4.35 per share. Petros Mylonas, Head of Southern Europe at LXM, said: “LXM is delighted to have brought our market knowledge and network to this deal. Evidently market sentiment towards Greece is improving and the large participation by international investors underlines the quality of Terna Energy as a company and more broadly the growth prospects of the Greek economy. We foresee much more appetite for global investment in Greece over the coming year.” LXM’s involvement in this deal and its successful completion underlines the Group’s strong commitment to Greece and the growing confidence in the recovery of its economy. LXM will continue to support corporates in raising their global profile over the coming year. Terna Energy, which is Greece’s largest renewable energy company, has 941 MW of installed capacity and a further 208 MW under development. With approximately 85% of the total shares placed with international investors, the transaction enhances the free float and marketability of the shares whilst also providing additional equity to be invested in new renewable energy projects (targeting 2,000 MW over a long-term horizon).   DOWNLOAD (PDF)
Thursday November 30, 2017


LXM Group is delighted to announce its membership of the Athens Stock Exchange (ATHEX). Petros Mylonas, Head of Southern Europe at LXM, said: “We are convinced that the Greek economy is reaching a crucial turning point, given recent strong fiscal performance. Membership demonstrates LXM’s confidence in the Greek recovery process and our commitment to Greece. We look forward to working with the Athens Exchange and leveraging our membership to bring more investment into the country.” LXM’s membership will take the number of foreign entities registered with Exchange to seven, joining the ranks of UBS, Bank of America Merrill Lynch, Citigroup, Credit Suisse and Deutsche Bank.   DOWNLOAD (PDF)


Greece is well on track to exit its bailout program in August 2018, supported by on-going and necessary structural reforms and improving macroeconomic fundamentals. In this context the Greek government submitted its 2018 budget to Parliament yesterday, which by all accounts indicates that the Greek economy has reached a crucial turning point. The 2018 budget assumes a continuing fiscal outperformance in 2018, calling for a primary surplus of 2.44% of GDP in 2017, after the distribution of a 0.78% social dividend. On this basis the 2017 primary surplus is seen shaping at 3.2%, translating to a standout 1.47% outperformance (ca. €2.6bn) relative to the program target of 1.75%. In terms of 2018, the budget envisions a primary surplus of 3.82% of GDP compared with 3.5% projected under the ESM program, resulting in an extra ca. €400-500mn cushion.  
Source: European Commission, Greek Ministry of Finance
Turning to GDP outlook, the Greek government revised down its growth estimate for 2017 to 1.6% from 1.8% incorporated in the draft budget, while slightly increasing the 2018 forecast to 2.5% from 2.4%.  
Source: European Commission
The improving outlook, combined with a recent second tapping of markets (i.e. €30bn debt swap which will boost liquidity and smooth maturities) and an expected third following the conclusion of the third review (in-line with the target to build up cash buffer of €12-15bn), align well with the government’s plan of exiting the bailout program in August 2018, ideally without a precautionary line of credit. In addition, the target for privatisation revenues in 2018 stands at €2.74bn (vs. €1.66bn in 2017), comprising of €720mn for completed or on-going tenders (€188mn for gas grid operator DESFA, €300mn for the development of Hellenikon airport, €232mn for Thessaloniki port) and the remainder from new tenders including amongst others sales of stakes in Hellenic Petroleum (€500mn), Athens International Airport (€500mn), OTE (€250mn), PPC (€100mn) and EYDAP (€64mn). Although much remains to be achieved in terms of prior actions for the third MoU review, underlying trends point to an improvement in investor sentiment, which combined with recent and further easing of capital controls, on-going state arrears clearance, planned privatisations, and discussions on the long-term sustainability of Greece’s debt, are expected to positively assist in achieving a further normalisation of the macroeconomic situation. Third MoU Review With just a few days left before official creditors return to Athens (expected for 27 November) to conclude the Staff-Level Agreement (SLA) before the 4 December Eurogroup meeting, it appears that one of the large and difficult prior actions is set to be settled. More specifically, the Greek government and European Commission have reportedly been in negotiations for several weeks over the liberalisation of the energy market, and specifically in relation to the divestment of 40% of the PPC’s lignite-powered units. Press notes that creditors had identified this as one of two issues that have to be agreed before 4 December, otherwise a technical agreement (SLA) would not be possible. On a positive note, press notes that the matter has now been resolved and that a deal has been reached between Athens and the Directorate-General for Competition in Brussels, which will include the sale of the Megalopolis 3 and 4 lignite units, as well as Melitis 1, while a permit to construct the Melitis 2 station will also be made available, as will lignite mines at Achlada, Vevi and Kleidi. This would leave the start of the e-auctions and out-of-court settlement process as the other matters that needs to be settled before an SLA can be achieved, while on a positive note, the government made progress on the former last week after reaching an agreement with notaries on the legal and operational framework for the auctions. Accordingly, notaries are due to officially call off their strike in the coming days, allowing the first e-auctions to begin on 29 November, an expected crucial component to improving the management of NPLs and in particular deal with strategic defaulters. Press also notes that if an SLA is achieved by 4 December, the government will then have until late January to legislate and adopt the relevant measures to conclude the review. Around 30% of the prior actions have reportedly been finalised (out of 101 in total), while if the government completes the remaining actions, the decision on the disbursement of the next bailout tranche (ca. €5bn) will reportedly be approved at the Eurogroup meeting scheduled for 22 January 2018 and ideally after the formation of a German government. Importantly, this would leave only a few of prior actions to be completed as part of the fourth and final review in 2018. Greek Political Front PASOK President Fofi Gennimata enjoyed a comfortable victory at Sunday’s run-off vote for the centre-left leadership and now faces the task of uniting social democratic forces as a credible political challenge to Syriza and New Democracy. Gennimata reportedly secured almost 57% of the vote, beating her opponent and MP Nikos Androulakis (likely to secure him a prominent position in the new political body). As noted Gennimata will have to find a way to convince voters that the new political body is not just PASOK in disguise, but will be a force to unite social democratic forces, and in all likelihood will have to find a way to involve centrist party To Potami, whose leader Stavros Theodorakis came fourth in the first round, and Athens Mayor Giorgos Kaminis, who took third place. Press is reporting that Gennimata must ensure she is able to retain the support of those who voted for the two non-PASOK candidates and show that the new alliance will be inclusive as well as progressive. In the below chart is evident that despite the positive outcome of the second review and the positive feedback from EU regarding the progress of fulfilling prior actions under the third review, Syriza is still struggling to close the gap with New Democracy. New Democracy has established on average a 10.0% lead over the last 1.5 years over Syriza in all opinion polls, while notably, the junior coalition party Independent Greeks has been unable to secure the minimum 3.0% threshold required to remain in the Greek Parliament in the majority of the opinion polls since early 2016.  
Source: University of Macedonia, Pulse
A potential read through is that the newly-elected leader could be encouraged by the participation in the first ballot, which exceeded expectations by reaching just over 210,000. The turnout was also higher than many thought in the second round, when approximately 156,000 voters took part. Pollsters have reportedly suggested that if these figures are extrapolated in a national election scenario, than support for the new group could reach double figures, which is roughly what the combined support for PASOK and To Potami reaches in current opinion polls. Accordingly, this level of backing could put the prospective alliance in a strong position at the next elections, especially if New Democracy, which currently has a comfortable lead in the opinion polls, fails to gain an outright majority, hence opening the way for the formation of a governing coalition. Despite there being no such indication of the PASOK leader leaning either towards Syriza or New Democracy, the subject is likely to dominate discussions during the creation of the new political body led by Gennimata. Press is also reporting that PM Alexis Tsipras will hope that a rejuvenated centre-left may make a useful political ally in the future, while by all accounts it appears that the government will not call early elections in view of securing debt relief and a successful exit to Greece’s bailout program in August 2018. Overall, strong fiscal performance and improving growth dynamics combined with an expected successful completion of the third MoU review, point to Greece’s economy entering a new phase which, combined with low political risk and a strong political drive, sets the scene for positive developments in 2018.