Greek firms keep cash out of the country

ATHENS • George Alevizos knows what it’s like to live with capital controls.

The finance manager at Fourlis Holdings SA, which has the franchise for Ikea furniture stores in Greece, Cyprus and Bulgaria, saw the company’s Cypriot sales fall about 30 per cent in the three months immediately after that country’s rescue in March 2013.

Now as Greece and its creditors head for a showdown that’s raising the spectre of the country’s exit from the euro or the imposition of capital controls, crisis-hardened company executives, although nervous, say the drawn-out turbulence has prepared them for the worst.

“We have faced this kind of issue with the operation in Cyprus,” Alevizos said in an interview. “Short term, however, there is always severe turbulence.”

Since Greece sparked the eurozone debt crisis in 2009, companies have been living with banks unable to lend, an economy struggling to emerge from recession and the shadow of uncertainty over the country’s future in the currency bloc. The tumultuous times have taught them valuable lessons — from keeping their cash overseas to developing export markets, executives said.

That preparation may be put to the test as Greece and its creditors fail to strike a deal on reforms Prime Minister Alexis Tsipras has to deliver to get as much as 7.2 billion euros ($10 billion) from the country’s existing bailout funds. With the bailout program expiring at the end of the month, time may be running out. That could mean capital controls like those in Cyprus in 2013, the first in a euro country. Companies have been quietly preparing for that possibility.

Take Sarantis, a distributor of products ranging from Estée Lauder cosmetics to insect repellents. The company’s cash has been kept outside Greece since the Cyprus crisis. Sarantis would probably see a fall in sales as the cost of imported goods rises if there are capital restrictions or an exit from the euro, Kostas Rozakeos, the company’s chief financial officer, said in a call with analysts.

The upside to an exit from the euro would be that the company would have lower production costs because its cash is abroad and will remain in foreign currency, he said.

“At the end of the day, Sarantis will have benefits,” he said. “I don’t wish that as a citizen, as a Greek citizen, but talking about this as a businessman, I can see opportunities.”

Sarantis will be the big guy on the block as smaller, weaker rivals succumb to the Greek cash crunch, he said.

More than 100 billion euros of deposits held by businesses and households in Greece have left its banking system since the end of 2009, with losses deepening since the beginning of this year, when the anti-austerity Tsipras government came to power.

The stalemate in talks between Greece and creditors over the last few months prompted JPMorgan analysts to write on June 1 that the impasse makes capital controls more likely “to nail down bank deposits, preventing portfolio type flows.”

No one knows the possible specifics for Greece, but here’s what happened in Cyprus: ATM withdrawals were capped at 300 euros a person per day. Transfers of more than 5,000 euros abroad were subject to approval by a committee. Companies needed documents for each payment order, with approvals for over 200,000 euros determined by available liquidity.

In some ways, the controls may be too little, too late. Companies, reading the writing on the wall, have kept funds outside Greece when they could.

Titan Cement Co., which rode out the financial crisis in the U.S. in 2008 and a revolution in 2011 in Egypt, has most of its cash reserves overseas. Cyprus-style controls may be a possibility for Greece, although an exit from the euro seems unlikely, chief executive Dimitrios Papalexopoulos told analysts on a call last month.

Of Titan’s cash reserves of 138 million euros, only 12 million euros are in Greece. About 70 million euros are with holding companies and European banks outside the country.

Hellas Direct, a Cyprusbased car insurer operating in Greece in which U.S. billionaire Daniel Loeb’s Third Point Hellenic Recovery Fund has a 20 per cent stake, has always kept cash out of Greece and Cyprus.

In Greece, “we only keep operational cash locally and sweep up capital on a weekly basis,” said Alexis Pantazis, cofounder of the company. “Even in the case of capital controls being imposed, we would have sufficient liquidity to continue as is.” tain conditions, while others will do better in different circumstances.

Asset allocation and being invested in markets is the most important first step, Reiman says. “It doesn’t mean you want to set the dial and leave your investments alone. There will naturally be times when you do nothing and others when you need to take some action.”

Investors should also understand that there will be migration in their portfolios over time depending on how certain assets perform. At times, that could mean a realignment is in order.

For example, the U.S. market has performed strongly over the past six years. As such, the percentage of U.S. holdings in many portfolios has risen over time, Reiman explains. “In the late 1990s, technology was almost onethird of the entire U.S. market cap, so that became a larger share of portfolio holdings. There will be times investors need to think about rebalancing holdings to make sure their portfolios don’t drift unintentionally into everlarger allocations that become stretched from a valuation standpoint.”

It’s important that investors take the time to consider their strategies over time. “Some may only need to look periodically at new opportunities; others may be more active in their approach and looking at their allocations more frequently. The key is, don’t just ‘set and forget’ your portfolio,” Reiman advises. “Investment advisers can be extremely helpful in offering advice about regions, sectors, size and style approaches.”

The clearer your strategy and goals, the stronger your portfolio will become, he adds. “You should not be trying to time the market. The most important thing is time in the market. In other words, rather than focusing on day-to-day headlines, think about your goals and what you want your investments to do for you. That’s far more important.”