-Economies of scale are adding tremendous potential to the sector-
Contractors build f irm foundations
Greek construction firms have carved out a solid international reputation for their ability to build almost any type of project on time, from massive public works and infrastructure projects to factories and luxurious villas. The construction sector is one of the most important in the country's economy, contributing between 10 and 14 per cent of the gross national product (GNP) and employing seven per cent of the workforce.
Buildings erected by Greek companies can be seen all over the world, from the Middle East and the Balkans to Pakistan and the Far East. Each country has influenced the way in which Greek contracting firms operate, but the biggest influence of all behind the construction boom has been the choice of Athens for the 2004 Olympics. The government's third Community Support Framework (CSF) has also spurred public developments, while the increase in private investment has boosted the prestige of Greek construction companies at home and abroad, as foreign capital from places as far away as Australia flows into the industry.
The recent lifting of the 14-year ban on luxury hotel development in Athens is set to spark even further growth. There has been a flurry of mergers and acquisitions in the past year, as companies require not only a huge capital base to win major tenders but also increasingly sophisticated technical skills. Economies of scale are being achieved as a result. A draft bill, which would create a licence grading system for companies wanting to bid for the major projects, has prompted more building firms to team up. Only those with the top licence will be eligible to bid in competitions for building projects valued at more than $24.8 million.
Of the 30 or so construction companies listed on the Athens bourse, only a handful would find themselves in the top-ranked category. These include Elliniki Technodomiki, Aktor and Volos Technical, and the J&P Group, in which Avax and Eteth are participants. Most construction firms have begun talks to ensure they are involved with groups that will get them a top licence. There are around 14,000 in Greece, so rapid consolidations are either taking place or being planned.
Anastasios Kallitsantsis, the managing director of Elliniki Technodomiki, says: "The construction sector has tremendous potential. In the next few years it will continue expanding rapidly, benefiting from the evolution of the Greek economy. Bigger schemes will be the main characteristic." Elliniki has a 25-28 per cent market share and a turnover of 300 million euros, which is expected to rise to 500 million euros in the next three to four years. "The consolidation in bigger schemes has been the result of the bigger volumes and requirements of the projects of the government's third CSF," says Mr Kallitsantis. "The government said it would change the law for public works, as well as some of the tax laws regarding mergers and acquisitions in order to give incentives to the construction firms to merge and create bigger entities. These would be able to under-take big projects, including BOT (build-operate-transfer) schemes, based on a broader, sophisticated financial and organisational background."
Mr Kallitsantis says that Elliniki has already benefited from economies of scale over the past two years, and has become the largest construction firm in Greece through consolidation with two other companies, Aktor and Volos. "We are continuing to concentrate on the Greek market, but we are also preparing to expand in the years to come. And we are considering cooperation with international players," he adds.
Just before Christmas, Elliniki completed its 44 billion drachmas rights issue, which boosted its equity capital to 142 billion drachmas. The company issued 40 million new shares, one-for-one, at 1,100 drachmas for each one. Proceeds will be used to ensure the company's participation in large co-funded projects and further expansion in the future. Meanwhile Aktor has purchased a majority stake in the technical services company Temkat, for 368.6 million drachmas.
George Stamatakis, general manager of J&P (Hellas) construction group, one of the world's top 25 contractors, is enthusiastic about the future. "We have a huge amount of work in front of us in the coming years, not only for the Olympic Games but also because of the EU. So there will be a big boom in the construction industry and this is why many companies in Europe are focusing on Greece. There are projects here needing the involvement of foreign firms."
The Greek government has made a tremendous effort to get the major public projects under way, including that of the new international airport, Attiki Odos, Thessaloniki Metro and the Rion-Antirion Bridge, points out Mr Stamatakis. "The main reason for delay was lack of experience, but now the projects have more experience and we have learnt from past mistakes," he says. "The financial values are good and teams have been formed with outside advisors."
J&P has operations in the Far East, Saudi Arabia, United Arab Emirates, Oman, Qatar, Bahrain, Pakistan and India. "In the Far East, there is a strong presence of big European construction firms, so we are moving slowly and carefully, but surely. Our strongest presence is in the Middle East, where we have been established for many years. We are also active in Egypt, Libya and the US. "A quarter of our turnover comes from private projects. This gives us constant turnover and we will continue our activities there. There will be more organised real estate activity in Greece, which means more construction," says Mr Stamatakis.