Coca-Cola Hellenic's decision to relocate from Greece to Switzerland, and the recent relocation by fellow Greek corporate FAGE, are limited precedents for other eurozone corporates for now, despite incentives to reduce share price discounts or protect against the risk of a full-blown sovereign crisis, Fitch Ratings says.
Redomiciling, as opposed to simply seeking listings on foreign exchanges, could mitigate the impact of a euro exit for issuers with substantial offshore operations and cash flow. This is the case for Coca-Cola Hellenic, which has operations in 28 countries and is seeking a premium listing in London as well as relocating to Switzerland, to reflect its international status and improve its access to capital markets.
Reflecting the severity of the crisis in Greece, Coca-Cola Hellenic - which has in any event been a stand-out case of diversification away from its home market - follows a similar move by FAGE, a much smaller international dairy company. FAGE announced a restructuring to move ultimate ownership of subsidiaries to a Luxembourg parent company.
Outside the highly-stressed situation in Greece, larger blue-chip corporates, especially those with a significant domestic presence, would face strong political resistance as well as the possibility of tax crystallisations and the complexity of debt novation. The prospect of creeping forms of taxation in an austerity-inflicted country is not yet a sufficient incentive. Smaller companies are likely to see limited benefits to their share prices or lending conditions, unless, like FAGE, they can demonstrate that the majority of revenues come from outside their home jurisdiction.
We expect peripheral eurozone corporates, in the first instance, to focus on reducing capital expenditure and dividend payments, which can preserve standalone credit profiles by offsetting the impact of a weak economy on revenues. Divestments, minority stake sales, and diversifying cash holdings away from the domestic banking system, are also popular measures to ensure liquidity.
Relocation of listings and accessing capital through subsidiaries in other jurisdictions were scenarios that came to the fore in Fitch's 'war game' exercise in August, which identified the likely responses to a hypothetical euro-exit crisis and the effectiveness of those responses in disentangling corporates from the sovereign risk of their home jurisdictions.
Fitch has also reiterated its fundamentals-driven approach to rating links between eurozone corporate ratings and their respective sovereigns, which leads to significant levels of independence between ratings actions on each.
