Superstar hedge fund manager Kyle Bass thinks Greece is turning a corner on its decade-long debt crisis that mired the country in a depression and whacked 28 percent from GDP. The founder and chief investment officer of Hayman Capital Management, which manages an estimated $815 million in assets under management, has a good pulse reading on the Greek economy and political climate. For years he's been invested in Greek bank stocks that are trading at a quarter of book value.
According to Bass, foreign investors are waiting on the sidelines for a tectonic political shift to take place in 2018. The country is now preparing to end its international bailout program next year, with more than €320 billion (US$372 billion) in national debt. On Monday, Greece announced it will distribute 1.4 billion euros ($1.63 billion) as a social dividend to pensioners and others hit hard by the country's austerity program.
"My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power. When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration.
"It's going to take Kyriakos Mitsotakis, president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence," said Bass. "I have no doubt €15 billion in bank deposits will come back to Greek banks if he's elected. The stock and bond markets will also jump following the election."
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The son of Constantine Mitsotakis, the former Greek prime minister and a Stanford graduate, is the head of the strongest Greek opposition party. Over the last year, he has forged ties with the European People's Party, which consists of center-right and Christian democratic European parties. Although Mitsotakis supports cuts in government spending, he is against higher taxes, since they are hurting the flow of foreign investment.
It's going to take Kyriakos Mitsotakis, president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence.Kyle Bassfounder and chief investment officer, Hayman Capital Management
Mitsotakis' vision is a downsizing of the public sector and bold tax reforms that include a tax reduction for businesses from 29 percent to 20 percent, slashing the extraordinary property tax by 30 percent in two years and a 5 percent cut in the dividend tax. He also vows to speed up the privatization process while pushing forward major projects, including investment in the former Athens airport.
"From my perspective, we have to fix two things in Greece for the market to take off," Bass said. "First, Greeks have to stop evading taxes. Second, they have to start repaying their loans."
A turnaround in the offing
As Bass explains, economic activity will get reenergized with the right leadership. The sectors global investors are eyeing right now are real estate, energy and tourism. "There is so much potential," he said. "Pimco, Lonestar, KKR are all looking to buy commercial properties in Greece."
He also noted that the country will have marquee privatizations over the next two years.
Big funds, including BlackRock, Fidelity Investments and Vanguard, have already established footholds with stakes in stocks such as National Bank of Greece and gambling firm OPAP, but Athens remains a frontier market. There are signs other money managers are starting to count on a deal to make Greek debt sustainable. That could also bring back more savings that fled abroad before Athens imposed capital controls at the height of the 2015 crisis.
The controls have since been relaxed, and two-thirds of the money that left Greek stocks since the end of 2007 have returned. Greece has also attracted some foreign direct investment in recent months, with Germany's airport operator Fraport taking control of local airports and Italy buying the national railway company.
In October, President Donald Trump met with Tsipras to discuss investment opportunities in Greece and collaborations in the field of energy. "Greece's contingent oil reserves are estimated at 950 million barrels," says Costis Stambolis, executive director of the Institute for Energy for South East Europe. "To date, however, 50 million of proven reserves have been discovered."
Major energy companies are lining up to tap the country's hydrocarbon potential in the waters surrounding southern Crete and the Grevena region in northern Greece, close to the route of the Trans Adriatic Pipeline.
In June, Greece approved applications submitted by a consortium of Total, ExxonMobil and Hellenic Petroleum for oil and gas drilling off the island of Crete.
Already, there have been U.S. investors willing to take on more Greek risk in other sectors. Calamos Investments' recent acquisition of Ethniki Insurance, Greece's largest insurance company, was a vote of confidence in the economic turnaround. The deal for a 75 percent stake in the insurer was made through a consortium of Calamos and EXIN Partners in June. Calamos Investments is a global investment firm with more than $20 billion in assets under management. Exin is a Dutch investor focused on insurance, reinsurance and asset management.
Breaking down barriersÂ
The hope is that investor momentum will build in the months ahead so the next act in the Greek drama will be a positive one. Currently, social costs remain high in Greece and the unemployment rate is at a staggering 21 percent. To get that rate down, Greece will need investments to grow, according to Greek economist Panos Tsakloglou, professor at the Athens University of Economics and Business and a former chairman of the Greek government's Council of Economic Advisors.
Nicholas Magginas, senior economist at the National Bank of Greece, agrees. "An economic recovery is under way in Greece, but its future crucially depends on a rebound in fixed capital investment in areas like shipping, food manufacturing, mining, energy, chemicals, real estate." He estimates that about €25 billion (US$29 billion) of new business investment is needed annually to support long-term productivity and growth.
"We need to be more competitive with neighboring countries in the EU," he said. "Greece needs to reduce its corporate tax rate and develop trade zones to spur exports. The country also needs to improve its legal system."
These barriers remain a huge stumbling block. Bureaucracy and red tape is hindering big investment projects. Last month the Greek government suffered a major blow when Canada's Eldorado Gold suspended mining operations in Greece over a permitting dispute. At the same time, its efforts to get a key privatization done — the redevelopment of the former Athens airport Hellinikon — has been slowed by environmental concerns and deliberations over whether the site is archaeologically significant.
Despite all the challenges, Bass believes Greece could be on an upward trajectory. 'There is so much potential in Greece," he said, noting that foreign investors know it and they are waiting for the right time to pull the trigger.
Correction: This story has been updated to reflect that Hayman Capital Management manages 18 accounts, totaling an estimated $815 million in assets under management.
