Greece sizes up task of restructuring corporate debt

The key theme of the workshop was the increasing number of corporate loans that face debt servicing problems. The studies presented during the workshop showed that one third of Greek corporates are in a “perfectly healthy” condition and have growth opportunities. In addition, it is seen that a large number of companies could significantly improve their outlook by restructuring their debt.

On the flipside, non-healthy corporates account for 20 percent of total corporate loans. This corresponds to around 20 billion euros of the total outstanding loan figure of 101 billion.

This 20 billion euros is less than half the figure of 44 billion recently disclosed by BoG governor Yannis Stournaras for corporate NPLs in the first quarter of the year. This suggests that any debt restructuring would focus on the 24 billion euros owed by firms that are still considered healthy.

The studies presented at the workshop also showed that corporates in sectors with comparative advantages for Greece have better prospects although there is a general lack of investment activity.

Another finding was that a solution on debt settlement would have a positive impact for the market as a whole, allowing companies that have survived the crisis to grow more. In addition, the release of resources from stagnant loan debt as well as the lifting of uncertainty would boost the economy.

On the legal front, the workshop indentified that current legislation prevents consultation among the company’s creditors as well as the cooperation of shareholders with creditors. In addition, the seniority of the state’s and social security funds’ claims against those of other creditors emerged as a critical issue, which would impact consultation and out-of-court solutions.

According to the BoG release, experience from other countries showed that specific emergency actions were needed to cope with special cases as existing tools would not suffice. In all such cases, the common component was the coordinated management of the problem via standardised procedures in an effort to find a solution at systemic level rather than to just intervene at micro level.

The workshop concluded that such exceptional cases require the creation of specific emergency institutions to carry out their task over a limited timeframe.

The BoG release came in the aftermath of recent press reports indicating the government will propose by mid-August to the troika an out-of-court solution on unpaid private debt settlement.

This would involve obligations of 160 billion euros stemming from non-performing loans (77 billion), unpaid taxes (66.4 billion) and unpaid social security contributions (16 billion). This solution will be initially applied to corporates and at a later stage to households.

*Read the original article at MacroPolis.