Landmark sale kicks off Greek NPL market

The country’s first major property-backed portfolio sold by a domestic bank met with strong demand.

Piraeus Bank’s Project Amoeba hit the market in late May with Bain Capital Credit emerging as the buyer of the first non-performing loan portfolio secured by commercial real estate in Greece.

The portfolio, with a gross book value of €1.45 billion, attracted initial interest from 32 international funds. Piraeus received 12 non-binding offers, of which, eventually, four became binding.

“The number of investors bidding to buy the portfolio shows there is interest in both Greek NPLs and the real estate market,” says a local industry player with knowledge of the deal who did not want to be named. “We are seeing investors on the ground, looking for other portfolios,” he adds.

Buyers of NPL portfolios such as Bain and other US-headquartered investors have invested in European markets including Ireland, Spain and Italy and are now targeting Greece, with the aim of capturing returns that are no longer on offer in more established markets.

“It is true that other markets have picked up in terms of pricing,” the industry player says. “Greece’s NPL market is still in the early stages and this transaction will be a reference point to other similar deals.”

For Project Amoeba, Bain has paid €432 million, a more than 70 percent discount to the portfolio’s gross value. The NPLs relate to 173 different borrowers and 1,650 commercial properties, thought to be located in urban areas of the Attica Peninsula, especially in Athens.

“This investment demonstrates our interest in the market as we are excited to play a part in Greece’s recovery,” Fabio Longo, head of Bain’s European non-performing loan and real estate business, noted on the deal’s announcement.

Bain declined to provide further details about its strategy in Greece, a market in which local banks have agreed with European Central Bank regulators to reduce their non-performing exposure to €64.6 billion by the end of 2019, from more than €100 billion.

In a conference about Greek NPLs held in May in Athens, George Georgakopoulos, Piraeus’s executive general manager, told the audience that pioneering Project Amoeba had created an “ecosystem” of industry participants that would “open up” a market until now limited to unsecured loans, according to local media reports.

Georgakopoulos noted that Amoeba was a landmark deal not only for Piraeus, but also for the domestic banking system in general, since it created a critical mass of interested investors for the country.

“This deal has acted as a positive catalyst for Greece,” says the anonymous local source. “As long as we have a very stabilised macro environment, with positive momentum, we will see more transactions of this type in the market,” he adds.

Greece, which has had three financial bail-outs from the eurozone and the International Monetary Fund since 2010, has been slow to address its debt problem for several reasons – economic uncertainty, political instability and an inadequate NPL workout framework have not been conducive to loan sales.

However, the economy is gradually improving from a very low base, reforms have been made to the country’s judicial structure and banks are in a better position to sell NPLs having built provisions and offloaded a large proportion of their Central and Eastern European exposure. The country also lacked a secondary debt trading market but was required to facilitate one as a condition of its bail-out.

“The secondary market is at primary stages. We had the first unsecured transactions at the end of 2017, which has accelerated banks’ strategy to structure more sales in 2018,” the source notes.

Despite a small pipeline of planned real estate loan transactions, Greek banks are expected to become increasingly active in 2018, according to investment banking firm Evercore. Piraeus and Alpha Bank – two of the country’s four systemic banks – feature among Europe’s top holders of legacy assets, with gross totals of €21 billion and €19 billion, respectively.