08/29/2011 12:18 pm ET Updated Oct 29, 2011

Exclusive: Finland wants Luxembourg agency to hold Greek assets

By John O'Donnell and Luke Baker

BRUSSELS (Reuters) - Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held as security for new loans to Athens, according to an internal document obtained by Reuters.

The proposal, drafted in June, remains a central plank of Finnish demands for collateral in return for providing more aid to Greece. Senior euro zone officials held another conference call on Monday to try to resolve the collateral issue.

If Finland does not get its way, it may pull out of the Greek bailout, unleashing renewed trouble in financial markets.

Although small at around 1.4 billion euros, Finland's share of the new support for Greece is important because its triple-A credit rating adds weight to the 109 billion euro rescue agreed on July 21, the second bailout package Athens has received.

Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone's attempt to save Athens from default.

In the document, Finnish officials set out how the Greek government and its privatization agency would authorize the transfer of assets to a holding company based in Luxembourg that would be used as security for states providing assistance.

The privatization agency would own all the shares in the asset holding company, although the shares would be held in custody by a third party. Since the holding company would be based in Luxembourg, it would operate under Luxembourg law.

Such a move would prove controversial in Greece, where the government has strongly rejected suggestions of offering land or company shares as collateral for future loans. It would in effect mean Greece, which plans to raise 50 billion euros from privatization by 2015, losing sovereignty over its assets.

"The Privatisation Agency is managing the AHC (Asset Holding Company) and can use AHC in a flexible way as one vehicle to securitize, manage, develop and privatize assets," reads the Finnish plan, dated June 23 and obtained exclusively by Reuters.

Greece, which passed a law in June to set up a privatization agency to handle the sale of state-owned companies, has so far taken few steps to implement the law, meaning it may miss a target agreed with the EU and IMF of raising 1.7 billion euros from privatizations by the end of September.


As well as acting as a warehouse for Greek property, such a stake in a national phone company or port, the Luxembourg vehicle would ringfence assets so they are not used for other borrowing but instead kept as security for countries offering aid. The Finnish document explains:

"If the market value of the assets of AHC does not meet the collateral requirements or the Hellenic Republic defaults on its loan obligations to the EFSF, the ownership of the shares in custody immediately transfers to the relevant member states," it says, referring to the European Financial Stability Facility, the 440 billion euro bailout fund drawn up last year.

The Finnish plan also flags a possible securitization of the assets held in Luxembourg, using cash flow generated from an airport, for example, as security for loans.

"The asset securitization would make both the valuation and the liquidation of the assets much easier," write the authors of the confidential document, which has been circulated to euro zone finance ministries in the form of a "non-paper."

The proposal is among those being discussed by euro zone officials in conference calls in recent days to try to reach agreement on how collateral can be provided to Finland, and potentially other member states, in exchange for new loans.

Earlier this year, ECB board member Juergen Stark put a value on the country's assets, which include stakes in Athens' airport, a bank, two ports, and the country's main telephone company, of 300 billion euros ($423 billion).

Tapping this wealth will be difficult politically. Talk of selling state companies prompted protests by workers worried they could lose their jobs in any privatization. Militant union members at the country's main electricity producer have warned the government not to pursue a sale.