Opalesque Industry Update - A new Greece focused hedge fund, launched in October 2012 by Dromeus Capital Group, finished 2012 up 40.3% as the Greek debt buyback and improving market sentiment towards Greece drove returns.|
Dromeus, the Emerging Markets alternative investment specialist, says that the consensus that Greece would have to exit the Euro has turned almost 180 degrees to an acceptance that a Grexit is off the cards.
Achilles Risvas, CEO, of Dromeus says: “Although the last quarter has seen a profound upwards rerating of Greek bonds we are strong believers that further positive repricing of Greek fixed-income and selected shares is still to come. But, while we have got off to a very strong start, we don’t expect the longer term revaluation of Greek assets to be all plain sailing.”
“Investors who want to benefit from the rerating of Greece, and the excellent value opportunities that exist there, will still have to be prepared for periods of volatility ahead.”
The buyback of Greek Government Bonds will reduce Greek debt from 144% of GDP to 124% of GDP by 2020 and will see Greek interest payments fall from 3.5% of GDP to 2% of GDP per year.
Dromeus, who had been long term bears of the Greek markets, established the fund after deciding that investors had taken an too extreme a view of the Greek economy and that selected assets had become heavily oversold.
The Dromeus Greek Advantage Fund now has 95% of its fund invested in Greek fixed-income, asset-backed securities and equities.
Adds Achilles Risvas: “Whilst the bond buyback does not mean that Greece has found a path to debt sustainability, the country’s immediate liquidity problems have been tackled. The funding gap through to 2016 is now largely dealt with.”
Achilles Risvas says that the Greek buyback process has seen further valuable commitments made by key players, such as German chancellor, Angela Merkel, to keep Greece in the Euro.
Whilst Greek Government Bonds have rallied, the performance of Greek equities has been weaker over the last two months, says Dromeus.
Explains Achilles Risvas: “With 10 year Greek bond yields of around 11% means the average 2.3% yield on Greek equities does not look too generous to us. However, there are opportunities to invest in selected companies with exceptional track records, visible cash generation, and fully funded business plans that trade on average below 5x EV/EBITDA and 8x earnings.”
“Despite the collapse in the Greek economy a good number of Greek corporates have defended their profitability and managed their balance sheets and earnings generating capacity comparatively well.”
Although the banks have seen substantial recent falls in their share prices, Dromeus still remains negative on the sector.
Dromeus says that plans for recapitalising the banks, which were announced recently, are likely to be too dilutive of existing shareholders. Future profits for the next five years for banks will largely be used to maintain regulatory capital. Dromeus believes this will leave limited value for existing shareholders.
Despite the vote, in early November, for an aggressive fiscal adjustment programme, Dromeus expects that political developments will continue to create volatility in the Greek markets.
Adds Achilles: “The government’s mandate is fragile enough for 2013 to bring its share of political crises. Whilst mainstream politicians have begun to understand the need for change, the reform programme is not progressing as fast as it could. For example, privatization of state owned assets remains slow.”