Πηγή: IFR
By Christopher Whittall
June 14 2012
Hellenic Telecommunications Organisation (OTE), a perfectly healthy Greek company, has become the weapon of choice for investors betting that Greece will leave the euro by the year-end. Five-year credit protection on the company has tripled since March, as investors use its CDS as a proxy.
Although rated B/B– by S&P and Fitch, respectively, OTE is viewed by most analysts as fundamentally sound. It is 40% owned by Deutsche Telekom, generates around a third of its revenues abroad, and should have sufficient liquidity to tide it over the next few years. But it is also based in the country that has been the bane of financial markets for the past two years.
“OTE is the only liquid Greek CDS out there, so people are trading it as a proxy for Greece leaving the euro,” said Michael Hampden-Turner, credit strategist at Citigroup. “Some are convinced that its fundamentals are strong and it will survive short-term. But the majority feel that if Greece were to exit, then OTE would almost certainly default too, which is why it’s trading at recovery levels,” he said.
Five-year OTE CDS reached a record wide of 3,846bp on May 18, up from 1,254bp in mid-March, shortly after Greece pulled off the largest sovereign restructuring in history by shaving around €100bn off its national debt.
“OTE is the only liquid Greek CDS out there, so people are trading it as a proxy for Greece leaving the euro”
One-year CDS – which has become a particular focus, given fears of an imminent Greek departure from the eurozone – now trades at 36 points upfront. In other words, an investor would have to pay €3.6m on day one to buy protection on €10m of notional, with €500,000 of coupon payments due over the course of the year.
Mainstay
Hellenic Telecom has long been a mainstay of the credit index markets. It was in the iTraxx Main Europe Index Series 1 to 14 and iTraxx Crossover Series 15 to 17, with an equivalent of US$1.7bn and US$407m notional outstanding in each set of indices respectively. The net notional of single-name CDS on OTE stands at US$1.14bn, with loans outstanding of US$1.13bn.
At the same time, there are fewer and fewer ways to play a Greek exit without having to resort to expensive and unpredictable proxy trades such as shorting peripheral countries. CDS on Greece itself is still not trading since the contracts were triggered in March (see “Lack of CDS compounds Greek bond pain”) and there are few other reference entities that offer enough liquidity to play with.
Despite trading at such wide levels, dealers report that CDS on OTE is relatively liquid, and that trades of US$5m–$10m pass through the market without too much fanfare.
“There’s a relatively hefty amount in indices and the single-name CDS was always widely traded – so in all, [OTE] has more net notional outstanding than the sovereign had,” Hampden-Turner said.
Good company, bad country
Investors see the company’s fate as inextricably linked with that of Greece, which is set to undergo another round of elections on June 17 following an inconclusive vote in May.
“The equity market is still debating whether OTE will issue a dividend this year,” said Andrew Sheets, head of European credit strategy at Morgan Stanley. “The credit world is debating whether it faces an imminent default. Credit markets are pricing in a great deal of systemic risk that has little to do with the firm’s underlying fundamentals.”
Sheets highlights OTE’s CDS curve (see chart), which shows the market reckons its annual default probability is higher over the next 12 months than it is over the next three years.
“Our economists put the chances of a Greek exit at 35%, which is probably lower than what is implied by CDS on OTE,” he said.
Credit traders believe that OTE should be able to weather a Greek exit, thanks to support from its German parent, although one said it was “50-50” whether it would file for bankruptcy.
“We don’t really know what precedent to go by,” said Sheets. “Deutsche Telekom owns a significant stake in OTE, but when Argentina defaulted, France Telecom and Telecom Italia let their local subsidiary default, despite they themselves being stronger credits.”
