Most analysts will tell you that the biggest problem facing the Cyprus economy these days is that of the banks’ high level of non-performing loans, many of them belonging to property developers. Enter George Mountis, Managing Partner at Delfi Partners who specialise in advising banks on how to deal with their customers’ problematic assets. It appears to be a perfect match.
Gold: What exactly does Delfi Partners do?
George Mountis: It essentially does two things: the first involves corporate finance, M&A advisory, business feasibility planning and debt restructuring, acting mainly on behalf of banks, corporates, insurance companies and big institutional players; and the second concerns real estate asset management services, by which we manage assets on behalf of banks and we help them optimise problematic assets with the main aim of disposing of them. We have maybe 3,000 assets under management in excess of €3 billion right now in Cyprus, Greece and South East Europe The specialised services we offer in this department range from evaluations, econometric studies, real estate investment advisory, lease advisory and real estate sector portfolio management. We are currently involved in the debt to equity process, mainly advising banks to help them conduct certain debt-to-asset swaps with various borrowers. What differentiates us is the fact that we combine financial banking advisory with real estate asset management. This mix is pretty much unique.
Gold: Aren’t the banks dealing with those ‘problematic assets’ themselves?
G.M.: Yes they are but they don’t have their own in-house dedicated real estate advisory services. We have created a groundbreaking real estate data bank of all the transactions that have been carried out in Cyprus and we know pretty much what deals have been made, at what values, in which zones and this helps us to provide added value services to the banks. It’s been very beneficial over the past few years in adding tangible value.
Gold: You obviously got into this at an ideal time, proving that one person’s (or company’s) misfortune is another’s opportunity.
G.M.: We did. Having been a banker in both the UK and Cyprus, I knew what was needed at the time and I knew what the banks needed.
Gold: So are the banks progressing on the NPL issue?
G.M.: They are making significant progress but there is a lot more to be done. The reduction so far is mainly due to the debt-to-asset swaps mentioned before rather than borrowers suddenly being able to repay their loans. But I can’t see any other way for the banks to reduce their non-performing loans. It’s the only way forward right now. The problem is how they optimise and organise these portfolios and take them to the market, and at what prices. They cannot suddenly flood the market with real estate. This is what we are helping the banks with and this is our core business.
Gold: Is the idea of the ‘Bad Bank’ likely to materialise?
G.M.: We’ve worked with an international management consulting firm to advise several banks on whether or not they should set up a bad bank. In essence, they all have their little bad banks but right now I don’t think the concept will work. The only thing that might work with all these assets being bought in debt-to-asset swaps would be if all the banks would collectively put together all these assets to optimise them. Instead of companies like ours advising five different banks that each pay us the same fee, they would get a lot more for their money if all these assets were put together in a portfolio structure – not off the balance sheet – and managed collectively. But each bank has a different strategy and agenda and it’s very difficult to do this in Cyprus. In Ireland it worked quite well but I can’t see it happening here.
Gold: Although some property developers are among those with the biggest outstanding loans, others are building new projects. Is the real estate sector really recovering?
G.M.: That’s an interesting question. Some of them, especially those working with agencies that are promoting the Government’s ‘Citizenship and/or Residence through Investment’ schemes, are doing quite well. The scheme has worked, though I don’t know how long it will last – I understand from the Government that there is pressure from the EU to “stop selling passports”. However, even the big developers that are creating new projects are over-leveraged so they have to deleverage and the only way is if the banks take control of some of the assets. There are some healthy ones that haven’t got that kind of debt exposure and they are doing reasonably well. Paphos and Limassol are doing well for property and real estate investment, Famagusta has shown some improvement and Larnaca is a bit behind but there is appetite from the Middle East. Overall there is a positive vibe and I believe that better days will come. I’m cautiously optimistic, I believe we have a lot more to offer and that casinos, marinas and high-rise buildings by the sea will take Cyprus to the next level. We should look at other jurisdictions like Dubai, Singapore or Monaco. We are never going to be the same as them but they should inspire us to leave aside our traditional way of thinking.
Gold: Hasn’t the experience of the past three years brought about a change in our way of thinking?
G.M.: In a way, yes. Things have begun to improve regarding bureaucracy, although there is still a great deal of room for improvement. I believe that even if things tend to move way too slow in Cyprus, they are at least not static. We may not be flying but we’re going in the right direction. A major problem we face in Cyprus is implementation – decisions, laws, rules and regulations – and we see it on a daily basis. We are not efficient like the British, especially in the public sector. Government bureaucracy needs to be removed and all departments should have a more pro-business attitude. In Cyprus we think we were the ones who invented the wheel and we’re the cleverest people in the world. Seen from the outside, we are nowhere near as important as we believe we are. I am tired of hearing that we want to become a financial centre when we have done nothing. It’s good that we have maybe 100 funds registered in Cyprus but go to Luxembourg where they have 1,000. CySEC says that it has streamlined some of its procedures but, on the other hand, it admits to being understaffed. We need to focus clearly on what we want to become and then act decisively. It all gets a bit lost in translation!
Gold: What are your plans for the company?
G.M.: We’ve established Delfi Partners Middle East and opened an office in Beirut. Before you tell me that it sounds like a strange move and ask why we didn’t choose Dubai, for example, we have been to Dubai and absolutely everyone is there. The competition is huge. On the other hand, we have been involved in many transactions for Lebanese banks in the Middle East and Cyprus and we wanted to be able to provide our services in that area and also to bring investors here. In Beirut we don’t have so much competition. Our next move is Greece where, by the end of the year, we’ll have 10 people working, working exclusively on advising banks on how to optimise and manage their assets.
Gold: Right place, right time again!
G.M.: Correct! Over the next 5-7 years, we’re going to be very busy helping banks to dispose of assets in both Cyprus and Greece. Only a small percentage of the investors will be from these two countries so we are in the process of organising an international network to bring investors from abroad. The Greek banks are now going through a phase of consolidation, so a lot of their south eastern subsidiaries will be sold as they focus on their core business activities – not only to lend money but to reduce their NPLs and dispose of non-core assets on their books. We already have a presence in Greece but we want to expand even more aggressively. The market is so much bigger so it makes sense for us. The team is growing and we have invested well in our staff. We have had offers by bigger firms to acquire us but, for now, I feel that it’s not the way for us to go.
Gold: Do you see any opportunities for you in the UK, following the Brexit vote?
G.M.: We have a small desk in the UK, focusing exclusively real estate investment advisory. I believe that there will be opportunities for us there for many reasons – there has always been great interest from the Middle East in UK property and we are planning to set up a Cypriot Real estate Alternative Investment Fund in early 2017 on behalf of one of our biggest clients, investing in Cyprus, Greece and UK, mainly commercial properties or tourism/leisure.
Gold: Apart from expanding outside Cyprus, I understand you’ve also created something called Delfi Analytics. What’s that all about?
G.M.: Delfi Analytics does three things: Data Analytics, Credit Analytics and Compliance Analytics. The third one in particular helps international business units and compliance departments in regulated companies. We have also created the first private corporate credit bureau to provide ratings on liquidity, trading assessments, creditworthiness, and financial standing in Cyprus. We aim to launch this on 1 September. We already have many international and local clients who are interested. These are interesting times!