The management of construction group Ellaktor is in talks with banks to secure fresh finance of at least 50 million euros as the unprecedented reduction in revenues from building activities (Aktor), which reached 265 million euros in the first half of the year, creates extremely pressing needs for a cash injection.
Banking sources say that talks do not look like they will be successful despite running for a long time.
In fact, the rather cold attitude of banks could be substantially changed, only if the main shareholders decide on a significant increase in equity, through a cash increase, which would send a strong message that they themselves believe in the successful completion of the ongoing reorganization program and are willing to take on their share of the risk. So far, however, there has been no indication that such an intention exists, at least in the foreseeable future.
The management of the group, according to comments from CEO Anastasios Kallitsantsis at last month’s general shareholders meeting, recognizes that there is a liquidity problem, not at the group level, but at the Aktor level. Kallitsantsis, in fact, did not rule out the possibility that the request for extra finance is rejected by lenders. He tried, however, to downplay the problem, saying that in this case "we will suffer for another six months".
Aktor's "suffering", despite the large cash injections from the parent company, has been translated into serious problems for the execution of construction works in the last few months. It is characteristic, as officials in the construction sector say, that in the big project that Aktor is carrying out at the Faliriko Bay, there have been a number of cases of workers launched protest action in order to get paid, with the last such incident arising in July.
The completion date for the project has been repeatedly pushed back, partly due to these problems, and has now been postponed to the end of this year, without any certainty that Aktor will meet this deadline.
Significant delays have also arisen in the process of assuming the management of the Alimos marina by Aktor Concessions, delays that the company attributed to various outstanding issues but also to the pandemic.
What the banks see
The data that the banks have in front of them, evaluating Ellaktor's request for a working capital of at least 50 million euros, are not very encouraging, as:
• After the large restructuring of debt, which was achieved last year through the issuance of a 600 million euro Eurobond, bank loans fell to zero and were replaced by a long-term debt, giving the group more time, since only 20% of the loan is due in the short-term. However, the interest rate of the loan was quite high, at 6.4%, ie above the initial loan refinanced, while Ellaktor was forced to pledge its top assets as collateral for the new debt.
• Based on first half data, Ellaktor did not stop showing high debt levels amounting to 1.5 billion euros, or 1.1 billion euros, not counting the loans of the joint ventures in which it participates in. In fact, borrowing was increased by 72 million euros compared to the end of the first half of 2019, mainly because the new bond loan issued at the beginning of the year included an additional 70 million euros, which was not enough to meet its cash needs.
• The next - and crucial - question is whether and to what extent the attempted implementation of the consolidation plan by the current administration will go beyond promises of improving the financial results and will really bear fruit. At present, what every potential creditor of the group sees is that in the first half of this year, it went from pre-tax profits of 29.4 million to losses of 21.2 million euros. The management cites the extraordinary impact of the pandemic and the fact that the consolidation process brings to the surface “invisible" losses, mainly in the construction sector, while in the long run the economic data will improve. Any prudent banker, however, especially in a period where the avoidance of new bad debt is paramount, would prefer to wait to evaluate the progress of the consolidation program, before creating new exposure to the group.
• A serious problem identified in a loan application process from Ellaktor is that it is difficult to find more quality assets to be pledged as collateral, since, as mentioned above, the best assets have been pledged in favor of the group’s bondholders for the amount of 600 million euros.