International investing can be a good way to diversify your portfolio and find investments many domestic focused investors overlook. In this article, I will discuss the opportunity in shares of Public Power Corporation and how U.S.-based investors can approach this foreign listed stock.
What is Public Power Corporation?
Public Power Corporation, commonly referred to as PPC, is Greece's largest provider of electricity and was created in 1950 to operate "in the interests of the public." The company is highly vertically integrated through mining, power generation, and transmission.
Today, PPC is 51% owned by the Greek government following a partial privatization in 2001; however, it still remains a dominant force in the energy sector. Shares of PPC used to trade over the counter in the U.S., but volume has since dried up and liquidity is only found today on the Frankfurt Stock Exchange and, to a greater extent, on the Athens Stock Exchange.
Because PPC is such a major part of the Greek economy, it also makes up nearly 5% of the Global X FTSE Greece 20 ETF (NYSEMKT:GREK), making it the fifth largest non-bank holding and by far the largest utility holding.
Investors tend to price in an extra degree of risk to state-controlled corporations since these corporations frequently have other goals besides shareholder returns. For much of its history, the Greek government has played a major role in the economy, with holdings in energy, banking, airlines, and gambling.
But for over a decade, the Greek government has trended toward privatization of industry. Even as capital issues forced the government to take majority stakes in National Bank of Greece (OTC:NBG.DL), Alpha Bank, Piraeus Bank, and Eurobank (OTC:EGFEY), the plan all along has been to eventually return these banks to the private sector and seek out private investors along the way. In showing a commitment to this, Eurobank has already been returned to majority private hands after a privately funded recapitalization and privately raised funds have reduced government stakes in the other three major banks.
Based around Greece's privatization record, I expect that all four major Greek banks will eventually be returned to private hands and the privatization of other industries is likely to continue.
Public Power hasn't required a bailout like the banks did, and it looks like the majority state ownership of PPC may be nearing an end. BBC reported the government has announced a plan to sell a 17% stake in PPC, thereby lowering its ownership stake to 34% and making the company majority privately controlled. Additionally, a subsidiary will be created out of PPC, representing about 30% of its power output, and will be sold to private investors.
While the sale of the subsidiary is likely to hurt revenues, much of this can be balanced out by an improving Greek economy increasing power demand and the ability for customers to pay their electric bills.
If the PPC privatization goes is successful, the stock could attract a new wave of investors looking to invest in a major Greek company but concerned about control by the Greek government. Once the government stake falls from 51% to 34%, PPC will look less like an investment in a government-controlled company and more of an investment in a private utility operator.
Investing in PPC
Shares of PPC used to trade under very light volume over the counter; however, U.S. investors must now look abroad to buy the shares themselves. For many investors, trading on the Frankfurt Stock Exchange is easier, since more international investing accounts allow access to this exchange. For those with access to the Athens Stock Exchange, liquidity is even greater, making it the most attractive exchange to purchase PPC shares.
Even if your account doesn't allow these types of international investing, the Global X FTSE Greece 20 ETF has PPC as nearly 5% of its holdings as of its most recent March 31 report. Although it's not a pure play on PPC, it does allow U.S.-based investors easier access to PPC while diversifying exposure with holdings in other Greek industries.
The bottom line
Sometimes the best stocks take a little extra time to invest in when they don't trade domestically. However, investors can buy PPC shares directly off the Frankfurt or Athens stock exchanges or get PPC as part of the Global X Greece ETF.
With PPC transforming from a majority state-owned corporation into a majority privately owned corporation, the company stands to attract new investors previously wary of investing in areas with more government control. Although there is still some political risk surrounding the privatization, the government appears very much committed to its plan, meaning there could be significant upside as PPC becomes privately run.