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An Interview with michailopoulos & associates discussing project finance in Greece – Lexology

This article is an extract from GTDT Market Intelligence Project Finance 2022. Click here for the full guide.


1 What have been the trends over the past year or so in terms of deal activity in the project finance sector in your jurisdiction?

The sovereign debt crisis and economic recession over the past decade in Greece resulted in insufficient levels of private capital in the market. As a consequence, the majority of the deal activity in the project finance sector has been driven by government policy and foreign investment initiatives. Under these circumstances Greece has mobilised funds from the European Union (EU) jointly with state funds aiming at supporting the private sector and fostering growth and development. According to the budget allocation of the European Structural and Investment Funds for the period 2014–2020, which applies until the end of 2023, €26 billion are expected to be channelled into the Greek economy. Furthermore, Greece has benefited from the European Fund for Strategic Investment (EFSI 2.0), which generated a significant amount of development funds for the country.

In terms of market trends, project activity in recent years has mainly related to privatisations. The closing of the transaction of the iconic ‘Hellinikon project’ (Europe’s greatest urban regeneration project of an area of 2 million sqm), the signing of a 40-year concession of Marina Alimou (one of the largest marinas in the eastern Mediterranean), the selection of a preferred investor of the Egnatia Road concession and the Public Gas Corporation infrastructure transaction represented major privatisation deals, with a huge impact on the national economy.

Lastly, as far as upcoming developments are concerned, the recently introduced National Recovery and Resilience Plan (NRRP) Greece 2.0, which has been designed to make the best use of €17.8 billion in grants and €12.7 billion in loans that have been allocated to Greece under the Recovery and Resilience Facility (RRF), is going to be of major importance. The four main pillars of the NRRP, namely (1) green transition, (2) digital transformation, (3) employment, skills and social cohesion and (4) private investment and transformation of the economy, set the tone for project activity in the coming years.

2 In terms of project finance transactions, which industry sectors have been the most active and what have been the most significant deals to close in your jurisdiction?

As explained above, the majority of projects taking place in Greece were dependent on government policy and foreign investments, as the infamous economic crisis severely affected local investors and lenders.

Nowadays the above situation is changing. The construction of a new subway (metro) line in Athens, was hailed by the Prime Minister as the ‘biggest public project in Greece’. The contract between Attiko Metro SA and the J&P Avax SA – Ghella SpA – Alstom Transport SA group of companies for the construction of Athens metro Line 4, has a total budget of €1.6 billion.

Among the project finance investments that are currently in the construction phase, the ‘Hellinikon project’, the largest development project in Greek history, undoubtedly stands out. The investment plan includes the conversion of a huge property (bigger than Monaco in size) on the site of the former Athens international airport into a complex including a marina, luxury residences, public parks, sporting facilities, exclusive shops and a casino. The total project value exceeds €8 billion. During the construction phase, the project is forecast to contribute 2 per cent to the country’s economy and create 85,000 jobs. In addition, 10,000 jobs will be created on a permanent basis. Tax revenues for the state will exceed €14 billion over a 25-year period, while there will also be many intangible benefits.

The concession of the exclusive right to own, use, administer, operate and exploit the ‘Marina of Alimos’ (largest marina of Greece) for a 40-year period represents a remarkable project with a total value for the whole concession period up to €177 million. Besides modernising existing port infrastructure and ship-laying or maintenance services, the investment plan also includes the regeneration of the marina’s land area through the construction of building facilities as well as the creation of recreational areas, boardwalks and park areas complete with dining areas, shops, hotel facilities, offices and playgrounds.

In addition, over recent years the renewable energy sources market has become a significant pillar of the Greek economy. Currently, in this field Greece is turning towards solar energy. In this respect, the oil company Hellenic Petroleum obtained €75 million in funding to build the country’s largest renewable energy project. The funding is coming from the European Bank for Reconstruction and Development (EBRD) for a project that will reach 204MW and will be executed with a construction of a power plant in northern Greece.

Moreover, the sector of tourism attracted, even during the covid-19 era, an important number of local and foreign investors that are mostly involved in a plethora of small-scale projects, such as the construction of new hotel facilities and resorts. It is worth noting that the construction, expansion and upgrade of resorts to a higher luxury level is highly promoted and subsidised from state resources by virtue of the Development Law. Investment plans that involve alternative means of tourism will also be subsidised, while the level of the funding support provided by the state will reach a maximum of €10 million per investment plan.

3 Which project sponsors have been most active in driving activity? Which banks have been most active in providing debt finance?

The financial crisis and the pandemic have resulted in significant constraints in project financing, affecting the ability of the systemic banks to provide loans and debt financing. Specifically, the four largest banks (Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank) have been facing the issue of management of non-ßperforming loans, the latter representing a significant burden.

Under these circumstances, the state had to interfere and provide financial liquidity to enterprises. In view of the above, €2.78 billion have been allocated, through financial instruments managed by the Hellenic Development Bank, to businesses during the health crisis. Specifically, the funds were granted through Entrepreneurship Fund II and the COVID-19 Guarantee Fund, which are largely co-financed by EU and state funds.

Regarding co-financed projects, the Greek government’s fund of funds, EquiFund, has been launched, with the goal of providing SMEs private equity and venture capital. Created by the Hellenic Republic in cooperation with the European Investment Fund (EIF), EquiFund is co-financed by EU and national funds, but also includes funding from the EIF and the European Investment Bank (EIB) through the EFSI. Strategic partners such as the Onassis Foundation and the National Bank of Greece have also committed to supporting EquiFund. The EquiFund investment platform with a total capital of over €300 million offers financial opportunities for innovative business ideas.

At the same time, the Infrastructure Fund of Funds (InfraFoF) aims at offering favourable financing terms in the private and public sector for the implementation of small and medium-sized projects, with emphasis on energy, environment and urban development. The funds of InfraFoF are allocated as follows: €200 million derive from the European Structural and Investment Funds under EPAnEK, €200 million from the Greek state (Public Investment Programme) and €50 million from recovered resources of the JESSICA initiative, which operated during the 2007–2013 Programming Period. The Fund is managed by the EIB and three interim financial institutions, which were selected through a competitive bidding procedure and will provide the investment loans.

As far as the private sector is concerned, project sponsors and debt finance providers, are usually development banks, infrastructure funds, large corporate and private equity funds.

4 What are the biggest challenges that your clients face when implementing projects in your jurisdiction?

In the aftermath of the financial assistance programmes, Greece adopted a series of key reforms in crucial sectors of the economy. The financial environment has become more business-friendly and attractive for foreign investments. A new economy with fewer barriers to entry and state interventionism, while offering an abundance of opportunities, is in the making.

However, certain obstacles that an investor might face while conducting business in Greece remain. The national investment legislative and regulatory framework is characterised by overregulation, dispersed legal texts, diverse ministerial decisions, controversial provisions and legal gaps. The environmental and town planning legislation is a characteristic example of the above situation, as, even though novel provisions that aim at solving existing issues are introduced, it is often noticed that investment plans are significantly slowed down by the adherence of the public administration to outdated and contradictory provisions that have not been literally repealed.

In addition, the laggardly administration of justice has proved to significantly affect and slow down the implementation of investment plans, as tax law, licensing and land permits, forced expropriation and contract execution issues are often brought before the competent Greek courts, the latter being unable, in some cases, to deliver a ruling within a fairly reasonable time frame.

Moreover, the project execution phase is also challenging for investors and project participants in general. The majority of the projects that are funded by state and/or EU funds are executed with recourse to procurement processes, the latter being characterised by strict deadlines, a plethora of exclusion and tender dismissal grounds and complex and unclear documentation requirements. In view of the above, our firm’s specialisation and extensive experience in procurement processes, PPPs and in the management of EU and state funding, provides our clients with a competitive advantage in the execution of such projects. Our profound understanding of the commercial realities and the modus operandi of the public authorities renders us excellent communicators of the legal complexities related to any project finance structure. Our team provides end-to-end legal services covering any aspect related to the development, financing, construction, operation and maintenance of major infrastructure and industrial projects.

5 Are there any proposed legal or regulatory changes that may give rise to new opportunities in project development and finance? Do you believe these changes will open the market up to a broader range of participants?

The NRRP Greece 2.0, which is designed to absorb €30.5 billion, aspires to lead the country’s economy, institutions and society into a new era; to spark a paradigm shift towards a more extroverted, competitive and green economic model, matched with a more efficient, less bureaucratic, digitalised state and a more growth-friendly tax system. In line with the above strategic goals, the introduction of new legislation in the above areas is only a matter of time.

With respect to green transition, the NRRP’s main aims include the reform of urban planning with the introduction of urban plans that offer prompt and trustworthy information on land use for almost the four-fifths of the country, and the installation and operation of publicly accessible charging infrastructure for electric vehicles, reforms that are able to make the access of investors to land information easier, and foster investments on electromobility.

As far as digital transformation is concerned, the NRRP calls for legislative interventions regarding the digitisation of key archives in various sectors (justice, urban planning agencies) and the interconnection and interoperability of registries, systems and services for data exchange in the public sector, initiatives that will protect investors from a load of administrative burdens that currently exist.

In addition, the NRRP introduces reforms that aim to increase competitiveness and to improve the business environment as well as Greece’s ranking in the Ease of Doing Business and other competitiveness indexes. The reforms also include the introduction of incentives to encourage micro, small and medium-sized enterprises to increase economies of scale through mergers, conversions, acquisitions and cooperation schemes and platforms. The investments promoted will be in the private sector and their selection will be made exclusively by commercial banks or European Institutions (EIB, EBRD), without the involvement of the government. There will be five eligible economic priorities: green transition, digital transformation, the promotion of exports, financing research and development (innovation), as well as promoting economies of scale. Loans will offer a maximum of 50 per cent co-financing, with third-party financing covering the rest.

Lastly, according to the new regional aid map for Greece – which was approved for the period 2022–2027 in the context of the revised Regional Aid Guidelines, regions covering 82.34 per cent of the population of Greece will be eligible for regional investment aid. It is noteworthy that 12 regions of the country are now eligible for aid of a maximum intensity that ranges between 30 per cent and 50 per cent, percentages that are considerably higher in comparison with the previous period (2014–2020).

6 What trends have you been seeing in terms of range of project participants? What factors have influenced negotiations on commercial terms and risk allocation? Are there any particularly innovative features?

As explained earlier, the limited financial capacity of the Greek commercial banks and the burden of non-performing loans did not allow them to provide systematic and extensive financing to projects. Since the implementation of the Hercules Asset Protection Scheme in 2018, the government extended first-loss guarantees on senior tranches of notes backed by pools of non-performing exposures that are securitised by Greek banks. By leveraging Hercules and the increase in investor interest in distressed assets linked to Greek bad debt, Greek banks have reduced legacy assets by more than €30 billion in the past three years.

The reliance of project finance to government funding and the liquidity issues that the country’s commercial banks faced have both led to a quite limited pool of project participants being involved in projects that take place in Greece. In this context, the role of the EBRD was important, as the EBRD offered direct financing in the form of loans, equity and guarantees. Currently, the investment portfolio of EBRD in Greece amounts to €2.3 billion. At the same time, the role of the EIB is equally important. For instance, in June the EIB announced its commitment to provide €400 million, in cooperation with the Hellenic Development Bank for business investment financing. In addition, in April 2021, the EIB agreed to help manage up to €5 billion as part of Greece’s implementation of the NRRP, known as Greece 2.0. Specifically, the EIB’s technical, financial and environmental experts will identify high-impact projects, priority sectors and effective financial structures to ensure best use of new European grant and loan support for Greece to mitigate the social and economic impact of the coronavirus pandemic.

7 What are the major changes in activity levels or new trends you anticipate over the next year or so?

Undoubtedly, the major influx of funds (€30.5 billion) that will reach the Greek economy through the RRF is going to affect the investment trends over the coming years. In terms of infrastructure, the construction of the Central Greece Highway (main road, service roads or connecting roads and supplementary works) of a total length of 70km of the northern section of the E65 Motorway, stands out. The motorway, which will be funded with €452 million, will improve connectivity between Southern Greece, Thessaly and Western Macedonia, the Western Balkans and the rest of Europe (through the port of Igoumenitsa) and will form part of the Trans-European Transport Network. The construction of the Cretan Northern Highway, which will connect the four major cities of Crete (Chania, Rethymno, Heraklion and Agios Nikolaos) represents an equally important project, which will be funded with €427 million.

In addition, €260 million of RRF funds will be invested for the development of tourism, aiming at the extension of the tourism season in Greece and the promotion of alternative forms of tourism, but also the contribution to economic resilience, sustainable growth and social and territorial cohesion.

Moreover, PPP schemes will be promoted through the NRRP, as an investment of €200 million in the national irrigation network will take place by means of a public-private partnership, as well as an investment of €24 million regarding the digital transformation of the Hellenic Railways Organisation.

Lastly, the energy sector is expected to be subject to major growth as the interest of private, local and foreign investors is high, while energy-related projects envisaged by the NRRP, such as the electricity interconnection of the Greek islands and the upgrading of the country’s electricity network, will reduce energy costs, leading to new investments and jobs in the energy-intensive sectors of the economy.


The Inside Track

What three things should a client consider when choosing counsel for a complex project financing?

Given the crucial role of government and state funding for the realisation of investment projects in Greece, the legal counsel needs to have proven experience in supporting co-funded projects, knowledge of the relevant legislative framework and public procurement procedures, but also awareness of the modus operandi of the public upper and lower administration. Therefore, a legal adviser with the above qualities is indispensable for the timely execution of a project, as his or her know-how can significantly reduce the administrative burden, by avoiding bureaucratic obstacles that slow down project execution.

What are the most important factors for a client to consider and address to successfully implement a project in your country?

Our experience has indicated that the smooth implementation of a project can be materialised if the project planning has been realistic and bankable, with calculated risks, after a thorough cost-benefit analysis. Furthermore, understanding local market practices and customs is a key factor.

What was the most noteworthy deal that you have worked on recently and what features were of key interest?

In our capacity as the legal adviser of the Special Secretariat-General for the Management of the European Social Fund Programmes of the Greek Ministry of Development and Investment, we are responsible for ensuring the smooth disbursement of an amount of €3.3. billion to the Greek economy, by advising on complex public finance issues and supporting, from a legal point of view, the preparation, award and execution of a series of contracts.

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