The recent recovery of the investment grade rating by the credit rating agencies DBRS and Standard & Poor’s, the upcoming upgrade from Fitch, and the double upgrade from Moody’s will soon bring economic benefits for small and medium-sized enterprises as well. Banks are already offering better interest rates to large companies, but this should also apply to SMEs seeking access to capital.
Achieving an average investment-grade rating will have a multi-layered positive impact on the Greek economy.
At the level of capital markets, the Athens Stock Exchange will once again gain access to institutional investor funds from which it had been excluded for over a decade. A typical example is pension funds, which manage significant assets but are prohibited by their charters from investing in markets that do not hold investment-grade status.
The boost in liquidity will not be limited to capital markets alone, as the reinstatement of investment grade will reduce the borrowing costs of the Greek State, and more importantly, the borrowing costs of the banking system.
The impact of the upgrade of the Greek economy will become more immediately evident to the average Greek business through the reduction of financing costs for Greek banks. Cheaper borrowing and improved valuations of the securities they use as collateral (primarily Greek government bonds) will translate into lower lending costs and increased access to bank financing for businesses.
Every business must understand the necessary tools required to implement its strategic plans and how its financial and commercial planning will translate into future economic benefits. Business planning is essential when negotiating with lenders — both for expansion into existing or new areas of activity and for securing financing or restructuring existing debt.
Beyond the immediate increase in liquidity in the Greek market, companies can also benefit indirectly from the upgrade of the Greek economy through improvements in their financial indicators.
An average investment-grade rating for the Greek economy from the eligible rating agencies will upgrade Greek government securities as well as the securities listed on the Athens Stock Exchange. These developments are expected to lead to a reduction in the Country Risk Premium — the additional return foreign investors require to invest in a country — and a reduction in the Equity Risk Premium — the return investors expect for investing in a company’s shares. Both metrics are directly linked to investment risk and are key components of a company’s cost of equity.
The simultaneous positive effect of regaining investment-grade status on both borrowing costs and cost of equity can substantially enhance a company’s valuation.
In summary, international markets acknowledge the positive trajectory of the Greek economy so far, evaluate its prospects favorably, and anticipate its resilience. The average Greek business must be able to clearly and accurately present its financial position and have a well-defined strategic plan, in order to raise new capital for its operations and growth or to seek opportunities in modern business structures.