Fair sale or fire sale?

Budgetary pressures from Greece to the US force tough questions on those contemplating asset sales

“A professionally run privatisation plan”. According to a report in the UK’s Guardian newspaper, that was the description selected by George Christodoulakis, the government official with the dubious pleasure of spearheading Greece’s sale of a diverse collection of state assets. Cynics, meanwhile, were happy to suggest a different label: ‘fire sale’.

Christodoulakis was talking at an event held this week at Claridge’s hotel in London’s Mayfair that was, prima facie, about ways to reform the Greek economy. Many saw it as little more than a pitch to potential buyers of assets including ports, airports and railways as Greece seeks to raise €50 billion by 2015 to help pay back its €110 billion European Union/International Monetary Fund ‘bailout’ loan.

But if Christodoulakis was hoping that the luxurious surroundings would add sparkle to the assets in question, he probably left the venue feeling disappointed. After all, according to the Guardian: “The private equity bosses gathered in the hotel’s ballroom for the parade of Greece’s national treasures showed little interest in buying.” One attendee cited a range of concerns including bureaucracy, union strength, corruption and lack of transparency.

This raises the prospect that if Greece does indeed end up selling at least some of the assets within the planned timeframe, it may have to be, shall we say, ‘pragmatic’ when it comes to price. At some point, the Greek government may have to ask itself: “How cheap is too cheap?” In a cover story on the subject of valuation in the upcoming July/August 2011 issue of Infrastructure Investor, we ask that very question in a feature exploring the turbulent negotiations surrounding sales processes for parking leases in various US cities.

The feature finds many subtle reasons why two valuations of the same asset may be very different. No room for detail here, but the question of how to value intangibles is raised. For example, how do you measure the value to a city of having control of its parking assets when a stated “commitment to parking” acts as a draw for private investment in its central business district (an issue faced by Harrisburg as it ponders the monetisation of its parking garages)?

But for all the subtleties, there is one persistent question that weighs heavy on the minds of many a public official today – whether based in a US city, Athens, or a plethora of other locations between and beyond: “How do I address my budget deficit?” Another one may follow from this: “What discount can I afford to offer on the sale of an asset before the amount raised becomes immaterial in the pursuit of my objective?”

The temptation to sell at any price is substantial in times like these. In our article, Yusuf Shah, chair of New Haven’s Board of Aldermen Finance Committee, voted in favour of the city’s sale of a $50 million, 25-year parking concession to Gates Group Capital Partners – a deal that was voted down. Shah, who was one of only two aldermen to vote in favour of the lease, conceded: “To put it bluntly, if we were not in dire straits at this particular point we would never have considered a deal like this.”

The flipside to that is that privatizing only when you are in dire straits is a sure way to guarantee that you will not get a good price for your assets. That’s something George Christodoulakis will probably find out for himself between now and 2015.