Greece could be the latest country to fund infrastructure projects via the capital markets.
But before the country sports its own brand of project finance/securitization financing, some minor tweaks must be made to Greece's existing securitization framework.
"There is some growing interest at looking at securitization as funding for some of the major infrastructure projects," said David Shearer at the international law firm of Allen & Overy. "But there are still a couple of technical issues with the law that make merging these two products difficult."
Athanasia G. Tsene at the law offices of M. & P. Bernitsas in Greece said the firm had recently been asked by an international investment bank to look into using securitization for an energy project. The bank did not proceed with structuring this deal because the technical issues involved in getting around Greek law made the use of securitization both confusing and costly when compared to traditional bank loan financing.
"These were very technical issues that could be readily resolved," Tsene said. "The law has made certain provisions that would allow cover of an SPV for these purposes, but it was just [perceived] as too much work for everybody. Most of these companies are just not used to the transaction costs associated with a securitization."
Tsene believes the entire exercise may seem too expensive for many issuers. However, if there is sufficient interest from the market, she is confident a structure can be arrived at under the current legal framework.
Diversifying funding options
Shearer said his firm has also received interest regarding potential projects. The primary motivation has been accessing the interest rates issuers can get in the capital markets as well as diversifying funding avenues.
"The intention would be to work with the law. It's well drafted and quite flexible, but it wasn't drafted with this type of securitization in mind," Shearer said. "I think the main issue now is finding how these deals can get done and whether they are worthwhile."
Though he said the structure is being actively looked at, the launch of a deal could be months, or even years, away.
But Greece's government is no stranger to securitizations. The country's initial boost of activity came from a government-related breed of deals that have recently come under scrutiny by the European Commision's Statistical Office, Eurostat. In the past, the government used deals to enhance its budgetary reports. Eurostat questioned the use of securitization for budgetary planning and said last year that it did not approve of the technique as a long-term solution for European countries.
The idea that securitization could help boost Greece's budget is no longer possible because most of these government-backed deals must be accounted for on the balance sheet. But the securitization shine hasn't gone away for good.
"In the medium term, I think [the government] will have to consider doing more of these deals - maybe not this year, but next year, definitely," Tsene said.
Tsene said there was one deal from a public law entity fully controlled by the government already in the works, and she expected possibly another tax securitization deal to be done in the near term.
"For some time there has been interest of securitizing Social Security fund contributions," she said. "We haven't seen anything official that indicates they will proceed with a deal, but we have seen a number of presentations on any legal issues that could arise in the process."
Greece's securitization market is no longer heavily dependent on volumes generated by the government. The change in the law has freed up the market and the trend has been toward private securitizations, Shearer said. Private banks have initiated a round of RMBS deals and one credit card deal has been done as well.
Shearer expected these banks to look at more consumer assets for future securitizations.
Tsene's firm worked on structuring a proposed securitization of real estate assets that fell through. She said there is at least one private deal in the works for this year.
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