Greece: At A Crossroads February 2015 Michael Richards Tim Cooper Michelle Berman Marina Petroleka Greece Country Risk & Financial Market Analyst Global Economist Head Of Shipping &Freight Research Head Of Energy & Infrastructure Research Michael Richards Greece Country Risk & Financial Market Analyst Tim Cooper Global Economist Michelle Berman Head of Shipping & Freight Research Marina Petroleka Head of Energy & Infrastructure Research
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Political Upheaval In Greece What has happened? Syriza win election But without majority (see chart) Form coalition with Independent Greeks What Does This Mean? Harder-line stance in troika negotiations. TROIKA: ECB make it harder for Greek banks to borrow GREECE: Promise to roll back austerity, no bailout extension 140 120 100 80 60 40 20 0 Syriza/IG Coalition Means More Uncertainty Greece - Seat Distribution In Parliament 160 151 Seat Majority 149 76 Source: Greek Parliament, BMI. 17 17 15 13 13
The Next Few Months Hanging By A Thread Markets to remain volatile (see charts) Bailout extension expires Feb 28 Troika: extend current deal by 6 months Greece: temporary bridging Loan Last Minute Compromise Secure ST financing Kick Grexit question down road ECB will continue banks ELA funding, avert liquidity crisis in sector 12 11 10 9 8 7 6 5 2300 2100 1900 1700 1500 1300 1100 900 700 500 300 2012 'Grexit' Crisis Top chart: 10-year bond yield. Bottom chart: ASE Equity Index. Source: Bloomberg, BMI.
The Next Few Years Greece To Remain In Eurozone Troika and Greece will reach a compromise Both have too much to lose from Grexit Extended debt maturities likely BUT, Syriza Will Struggle To Survive Party made promises it cannot keep. Bailout agreement will anger extreme factions of coalition Govt collapse and fresh elections likely before 2016 Elections/Fragile Governments the new norm Austria Finland Ireland Germany France Luxembourg Netherlands Estonia Malta Portugal Slovenia Italy Belgium Lithuania Slovakia Spain Latvia Cyprus Greece Bottom Of The Pile BMI Long-Term Political Risk Indices 50 60 70 80 90 100 Table Source: BMI. NB. Lower Score Indicates Higher Risk
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Uncertainty To Dent Economic Recovery What is Greece s economic outlook? Growth returning (see right chart), but built on shaky foundations Uncertainty to drag on investment and consumer spending 8 6 4 2 0-2 -4 180 175 170 15 10 5 0-6 -8-10 -12 165 160 155 150-5 -10-15 -20-25 What about the banking sector? Deposit flight accelerating (see left chart) Sector collapse likely to be prevented by continued ECB funding EURbn % chg y-o-y (RHS) Top chart: Real GDP Growth, % chg y-o-y. Bottom chart: Banking Sector Deposits. Source: HSA, BMI Calculation.
What If Greece Defaults and Exits Eurozone? Short-Term Economic Chaos 30% chance of accidental exit. Run on banks, currency collapse, raw materials shortages Plunged back into severe recession (see chart) Longer-Term Implications Less Clear Regain control of monetary policy. Implement QE to reflate the economy and finance the budget deficit. Competitiveness gains as drachma devalues 8 6 4 2 0-2 -4-6 -8 Grexit Would Pull Greece Back Into Recession Greece Real GDP, % chg y-o-y and BMI Forecasts Grexit Core Scenario e/f = BMI estimate/forecast. Source: HSA, Bloomberg, BMI.
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Dec.99 Dec.00 Dec.01 Dec.02 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.10 Dec.11 Dec.12 Dec.13 Eurozone: Greek Exposure Relatively Contained 120.0 Greece Rest of Eurozone European Bank (ex-uk) Lending To Greece, EURbn 200 180 100.0 80.0 3.4% 3.3% 1.8% 1.3% 160 140 120 60.0 40.0 100 80 60 20.0 40 0.0 Government Debt Population GDP Banking Sector Assets 20 0 On purely size basis, Greece small in relation to rest of the eurozone Importantly, systemic risk contained compared with 2010-12 crisis Private sector / foreign bank exposure significantly lower than on eve of last crisis Source: Eurostat, Bank of Greece (LHS Chart); Bank for International Settlements (RHS Chart). BMI Calculations.
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Eurozone: Greek Exposure Relatively Contained 10-Year Bond Yields in 2010-12 Crisis... 4.5...and Today 12 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 Italy Spain Greece, RHS 40 35 30 25 20 15 10 5 0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Italy Spain Greece, RHS 10 8 6 4 2 0 Market reaction to the current crisis reflects likelihood of deal, and of containment Source: Macrobond, BMI
Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15 Jan-16 Eurozone: Muddling Through, With Or Without Greece 180.0 160.0 140.0 120.0 Govt Debt % GDP 2014e 2020f European Central Bank Assets, EURbn 4,000 3,500 3,000 100.0 2,500 80.0 2,000 60.0 40.0 20.0 Projected 1,500 1,000 0.0 500 With Greece out, eurozone can still go on, especially with institutional support (ECB QE etc) Growth turning the corner for key countries, but overall will remain sub-optimal Either way, 2017 will be a big year politically (Germany / France elections) Source: Eurostat, European Central Bank, BMI Estimates/Forecasts
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
O&G Upstream : Outlook Negative Below and Above Ground Risks Below Ground Greenfield > High Exploration Risk Above Ground Low Oil Prices > E&P Capex Cuts Political, Regulatory and Fiscal Risk Nebulous Licensing Regime Country Name of Tender Tender Details Status Date Algeria 4th Bid Round 2014 92 onshore blocks on offer Completed/Four Licences Awarded 2014 Bulgaria Silistar, Teres Licensing Round Silistar, Teres Offshore Blocks Tender Launched Dec-14 Croatia 1st International Offshore Croatian Licensing Round, 29 offshore blocks offered Underway/10 Licences Awarded/April 2015 signing 2015 Egypt EGAS International Bid Round 8 blocks offered, onshore & offshore Completed Q1 2015 EGPC 2013 Bid Egypt Greece Greece Ireland Lebanon Montenegro Ukraine Ukraine Europe - Mediterranean Licensing Rounds, 2014-2015 - Frontier Plays Round 15 blocks offered Completed Q1 2015 20 blocks offered, Underway / May offshore, 2015 deadline for greenfield bids 2015 2nd International Licensing Round 3 Onshore Blocks tender 2015 Atlantic Margin Oil and Gas Exploration Licensing Round First Offshore Licensing Round 2013 Montenegro 1st licensing round Nadra Ukrayny Onshore Tenders Nadra Ukrayny Onshore Tender (20) 3 onshore blocks offered, brownfield 21 onshore & offshore blocks Underway/ Bids submitted (February 2015) 2015 Underway/ Qualification closing September 2015 2015 9 blocks on offer, offshore Underway / Bid deadline extended 2015 13 offshore blocks Underway /Bids on offer, offshore submitted 2015 3 onshore blocks offered (21,22,23) Underway 2014-2015 12 onshore blocks offered Completed / 4 licences awarded 2014 Source: Deloitte Petroleum Services Group, BMI Research
O&G Midstream : Russian Pivot? Southern Corridor TAP Greek suggestions: Lower Azeri Gas prices Greek Equity in TAP Transmission fees Turkish Stream into Greece Not a viable project Lack of European demand EU Roadblocks Maps Source: Interfax
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Infrastructure Privatisations On Ice Maybe Asset Sector Status Marinas and Small Ports Ports Underway Thessaloniki, Piraeus and Regional Ports Ports Underway Regional Airports Airports Underway ROSCO Rail Underway EYATH - Thessaloniki Water Utilities Underway TrainOSE Rail Underway Athens International Airport Airports Planned EYDAP - Athens Water Utilities Planned Public Power Corporation PPC Planned South Kavala Natural Gas Storage O&G Infrastructure Planned Egnatia Odos Motorway Roads Planned Source: HRADF HRADF est. 2011 - Privitisation programme behind schedule and revenues below expectations. Halt to privatisations a key pillar of Syriza s platform. HRADF to be re-launched and re-named to Public Wealth Fund > state to keep equity in assets. Strategic assets, energy for instance, will not be privatised, but possible JVs with foreign companies and the state.
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Port Privatisation (Piraeus) Best Case Scenario: Syriza U-turns and privatisation goes ahead as planned. Likely Scenario: Maritime Sector Privatisation Has Brought Success Syriza halts privatisation. Looks into government-to- government related deal instead. Worst Case Scenario: Renationalisation becomes an option, previous concessions investigated Shipping We are looking to solve problems, not create new ones... There will be dialogue, and we will look for the best possible solution. Minister of Economy, Infrastructure, Shipping and Tourism George Stathakis Source: COSCO Pacific
Introduction Overview Political Risk: Instability To Persist Macroeconomics: Uncertainty To Hit Recovery Eurozone: Greek Exposure Relatively Contained Oil & Gas Infrastructure Maritime Operational Risk Q & A
Operational Risk Threats Operational Risk: Underperforming regional peers Logistics Risk Global shipping role, but threat to future investment from privatisation uncertainty. Labour Market Risk Elevated unemployment and continuing brain drain. Trade and Investment Risk Lack of policy continuity a key investor worry. Crime and Security Risk Threat of social unrest. BMI Operational Risk Index scored out of 100. 100= Highest score. 1= Lowest score. Source: BMI
Greece: At A Crossroads Q&A Michael Richards Tim Cooper Michelle Berman Marina Petroleka Greece Country Risk & Financial Market Analyst Global Economist Head Of Shipping &Freight Research Head Of Energy & Infrastructure Research