Greece's Rating Woes Weigh on Greek ADRs (NBG, OTE, CCH, DRYS, DSX, EXM, NM, TOPS, TNP)

Fitch Ratings joined in with a downgrade of Greece’s credit rating following a similar action yesterday by Standard & Poor’s. The downgrade this morning was to “BBB+” from “A-“… and the ratings outlook remains negative.  The downgrade was based upon medium-term outlook for public finances with weak credibility of fiscal institutions and the policy framework in Greece.  This is weighing on Greek shares that trade in the U.S. to the tune of National Bank of Greece SA (NYSE: NBG), Hellenic Telecommunications Organization SA (NYSE: OTE), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH).

While international shipping companies operate globally, international maritime law and domicile has favored Greek flags for where corporate headquarters happen to be located.  There is also a notion that Greeks have been among the world’s greatest seafarers for generations, but here is how these are performing today:  DryShips, Inc. (NASDAQ: DRYS) is based in Athens, its shares are down 1.6% at $6.16.  Diana Shipping Inc. (NYSE: DSX) is based in Athens, its shares are down 3.9% at $14.98.  Excel Maritime Carriers, Ltd. (NYSE: EXM) is based in Athens, its shares are down 3.3% at $6.79.  Navios Maritime Holdings Inc. (NYSE: NM) is based in Piraeus, its shares are down 1.5% at $5.86.  Top Ships Inc. (NASDAQ: TOPS) is based in Athens, its shares are down 1% at $1.02.  Tsakos Energy Navigation Ltd. (NYSE: TNP) is based in Athens, its shares are down 2.7% at $16.01.

Standard & Poor’s put Greece’s A- rating on CreditWatch negative yesterday, and it raised issues with government finances that could lead to downgrades in the future. Fitch referred to “fiscal slippage relative to current plans” could result in a further downgrade, but also noted that the emergence of a much stronger policy commitment and its consistent implementation could see the outlook revised to stable.  This follows new policies the government has committed to and it further outlines some of the risks that the larger European Union members are taking on with each new less developed nation added to the E.U.

This has also driven up credit default swap rates in insuring against Greek default.  Fitch further noted that Greece could now see its government debt burden reach close to 130% of gross domestic product.  Also noted is an aging population and a highly generous and unreformed pension system at 15% of GDP.

Greek banks have a large part of their assets in Greek government bonds, and those bonds are used as collateral for their regular loans from the ECB. The new government increased its forecast this year noting that the budget deficit could be almost double prior targets at a new rate of 13% of GDP.

The top three ADRs are down on the day in NYSE trading: National Bank of Greece SA (NYSE: NBG) is down 9.7% at $5.43, Hellenic Telecommunications Organization SA (NYSE: OTE) is down 3.2% at $7.47, and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) is down 1.9% at $23.49 on thin volume.

There is a lesson here for all nations.  While we have to take care of each other, the real question boils down to ‘at what cost’ and the implications are that paying for every aspect of the generations of today is going to drastically increase the burden on the generations of tomorrow.

Jon C. Ogg
December 8, 2009