With shipping one of the key industries in Greece, it comes as no surprise that there have been attempts in the past to attract shipping capital to the main Greek exchange, the Athens Stock Exchange (ASE). In fact, coastal shipping had already entered the ASE on the basis of the existing legal framework, with minor adjustments introduced by stock exchange regulations, and the shares of four coastal companies are presently traded in the ASE. Until recently however, the Stock Exchange authorities were hesitant in allowing ocean-going shipping in the ASE due to the unpredictable and at times violent fluctuation of the freight market, the sea-risks and other risks associated with the industry and, consequently, the greater degree of uncertainty for investors.
The Greek parliament has recently passed a new law (L.2843) setting the conditions for the listing of ocean-going shipping in the ASE. The new law has been the object of controversies and discussions among the interested parties for over a year. The outcome of the above discussions was a set of fresh provisions supplementing and, in parts, radically amending the law. At the initiative of the ASE, the new provisions have been included in a bill deposited with the Greek parliament in February 2002. Despite criticism, it is beyond doubt that recent legislation has brought ocean-going shipping closer to the gates of the ASE than it was ever before.
New vehicle for investments: The EEPN
The new law formed a new vehicle for investments in ocean-going shipping: a holding company called EEPN (Etairia Ependyseon Stin Pontoporo Naytilia, ocean-going shipping investment company). The particularity of the above company is that it may only serve as the holding company of shares of other companies, which either own or manage ocean-going vessels or serve themselves as holding companies (sub-holding companies) of shares of such owning companies. The Greek stock-market legislation (L.1969/91) already recognised the investment company as a separate type of company having as an objective the investment in other companies' shares; the EEPN basically follows the same pattern with various amendments pertaining to the particular needs of this specific company.
The main characteristics of the above holding company (EEPN) are described below.
Exclusive object
The object of the EEPN is exclusively investing in ocean-going shipping. Any other form of listing shares in companies engaged in ocean-going shipping is generally not allowed. Companies listed on the ASE are explicitly forbidden to invest, whether directly or indirectly, in ocean-going vessels or in companies managing such vessels, and to manage such vessels themselves, unless they are formed and operate as an EEPN; this type of company has therefore been nominated as the sole vehicle for such investments. Exceptions to the above rule are specifically provided for by the new laws, among which are investment in EEPN shares by investment companies, by listed companies solely in order to serve their functional needs or needs of their subsidiaries, and investments, of financial institutions arising in the course of the exercise of their rights from financing agreements.
Minimum capital requirement
The EEPN is subject to a minimum capital requirement of EUR29.35m, as opposed to an ordinary corporation, which has a minimum capital of EUR60,000. In addition, the law explicitly provides that the capital of the EEPN needs to be fully paid-up at the time of its incorporation, whereas it is possible for the share capital of an ordinary corporation to be partially paid following specific provisions in the statutes of the company. The EEPN may not issue subscription titles, again a provision already existing for investment companies.
Capital structure
The EEPN must invest in the totality of the shares and voting rights of ship-owning companies, which will own at least four ocean-going cargo-carrying vessels; the value of each investment may not exceed 50% of the total book value of the company. The invested shares may belong to the EEPN either directly or through holding companies (sub-holding companies), the shares of which belong 100% to the EEPN. Apart from ships, the EEPN may invest in cash, bank deposits or securities of equivalent liquidity. Investments in ships and liquid assets should in any event be at least 75% of the total book value of the company. The remaining 25% (or less) may be invested in:
- holdings of at least 50% of shares and votes in ship-owning companies, such holdings again belonging to the EEPN either directly or through sub-holding companies 100% owned and controlled by the EEPN;
- shares of companies managing ships in a percentage at least 51% of their share capital and voting rights; and/or
- immovable or movable property serving direct functional needs of the EEPN or of its subsidiaries.
The EEPN is specifically permitted by law to enter into derivative contracts aiming at hedging currency or interest risks.
Ships
The ships in which the investments of the EEPN may be directed are limited to ocean-going cargo-carrying vessels of over 3,000 gross tons each, flying the Greek flag or the flag of a member state of the European Union or of the European Economic Zone or, irrespective of the flag-state, vessels covered by a social security contract with the Seamen's Pension Fund (NAT) in accordance with L.29/1975. Among the above ships may be also be new buildings under construction. In particular, investments in ships under construction, which belong to companies the shares of which are totally owned by the EEPN, may not exceed 30% of the assets of the EEPN.
Throughout the life of the EEPN, all its ships must be classified in one of the Classification Societies approved by the European Union and authorised by the Greek government and should maintain the highest class for vessels of the same category.
In the event of the number of ships in which the EEPN has invested in the totality of the owning companies' shares (see above) falling under two, the authorities may strike out the shares from the ASE.
Valuations
The valuation of the shares of ship-owning companies is effected jointly by two auditing companies, one of which may be an internationally recognised auditors firm that follows the international accounting standards. The valuation of contributions in kind for the formation of the share capital of the company, which must take place before the decision of the Stock Exchange for listing, is therefore much simpler than in other companies applying for listing, for which the valuation is carried out by the three-member committee provided for ordinary corporations (L.2190/1920).
The valuation of the vessels (including new buildings under construction) is effected by two independent sale and purchase shipbroking firms, of international status, which are selected from a panel approved by the Capital Market Committee, following the opinion of the Hellenic Chamber of Shipping. In the event there cannot be an agreement between the valuers and the difference between the two valuations is up to 5%, the value of the vessel cannot be considered to be a value greater than the average of the two valuations. If the difference is over 5%, a third broker selected from the above panel by both the first two brokers makes the final valuation.
Loan exposure
At the time of filing the application for listing in the ASE, the total equity of the EEPN on a consolidated basis may not be less than 30% of its total book value. This limitation does not apply when the financing exposure of the EEPN has been rated, totally or partially, by an international risk rating agency and the EEPN has been accredited with an adequate investment grade.
Insurance requirements
All vessels in which the EEPN invests must be covered throughout the life of the EEPN by highest-class insurance through the services of insurers or insurance companies or Protection and Indemnity Associations of international repute. This provision aims at ensuring that the main assets of the EEPN will be protected against sea and other associated risks throughout the period of investment.
Procedure for listing the EEPN shares in the ASE
Unlike an ordinary corporation, the EEPN must file the application for listing its shares on the ASE within two years of its formation (or conversion, if the EEPN derives from a company already existing). If the application is not filed within three years of its formation or conversion, or if the application filed is rejected by the ASE, the company is led to obligatory winding up and dissolution and the relevant state permission for its operation is revoked. At the time of filing its application for listing, and at the time of listing of its shares on the ASE the EEPN must have already invested, directly or indirectly, at least 60% of its total book assets into the shares of ship-owning companies entirely held by it.
The listing of the EEPN shares is permitted even before closing of its first accounting year and before the filing of accounts. This in essence means that the EEPN may be listed upon its formation. The tax audit of an EEPN which has applied for listing its shares for the first time on the ASE, as well as the tax audit of the subsidiaries of the EEPN, may be carried out by the tax authorities in the shorter delays provided by PD350/1985 articles 3 para 3a (three months from the date of application, with another three months' extension due to exceptional reasons concerning the size of the company or the extent of the necessary checks). An ordinary corporation, on the other hand, normally needs to produce published balance sheets for the last three years before the application for listing.
Prospectus
As with any corporation seeking to list its shares on the ASE, the EEPN should before anything else draw up a prospectus and submit the same for approval to the ASE Board. At the same time, the tax, economic and legal due diligence must take place concerning the applicant for listing and its subsidiaries.
The underwriter in the issue checks the reliability and experience of the controlling shareholders and the persons who are going to manage the EEPN as well as the suitability of the latter for the proper management of the company.
The prospectus must also contain specific reference to:
- risk factors that could affect the prospects of the EEPN;
- historical records of the progress of other negotiable securities that have been issued by the EEPN, or companies affiliated with it, in any organised market; and
- any circumstances that might lead to a conflict of interest with respect to the EEPN or its subsidiaries (contracts or transactions between affiliated persons) and any other information, which at the discretion of the underwriter could constitute a risk factor affecting the prospects of the company.
Transparency
The prospectus must include curriculum vitae of natural persons directly or indirectly controlling more than 5% of the capital of the EEPN as well as of the members of its Board. In the prospectus, specific reference must be made if the above persons are or have been conected with companies which have been subject to bankruptcy, receivership, special liquidation or similar proceedings in Greece or abroad. In addition, the subscribers of the EEPN must declare whether they hold at the time of listing or have held in the past a shareholding of 10% or more, in private shipping companies or shipping companies listed in one of the recognised international stock exchanges or other capital markets and, if so, provide information on the progress of the relevant security after its listing in the organised market or public offer.
At the time of listing of the EEPN on the ASE and throughout the period its shares remain listed, transfers of any assets between the EEPN and/or its subsidiaries and its subscribers, controlling shareholders, members of the Board and general managers, their relatives, legal entities directly or indirectly controlled by the above, and persons acting on behalf of any of such persons are not allowed, unless the meeting of the shareholders of the EEPN has specifically consented to the relevant transfer and no more than 1/3 of the shareholders has contradicted such consent.
The shares of the EEPN and its subsidiaries are registered.
Operation and management
The day-to-day operation of the vessels controlled by the EEPN, in accordance with international shipping practice, may be entrusted to one or more management companies which are established in Greece. The management companies need to operate in accordance with international conventions and be furnished with the Document of Compliance provided by the International Safety Management Code (ISM). Also, the management companies should have experience and be qualified in rendering managing services to ship-owning companies.
The law specifically excludes from the day-to-day operation process all decisions concerning sale and purchase of any assets, the execution of loan agreements, the remodeling of vessels, the conclusion of charters or time-charters of vessels for over 12 months and the disposal of reserves. Only the ship-owning company concerned is competent to make these decisions.
The management companies need not be linked with the EEPN or its subsidiaries by any shareholding relationship. The EEPN has the duty to inform the public of any eventual relationship of the management company with the subscribers, controlling shareholders, members of the Board, general manager or manager of the EEPN or any of its subsidiaries, as well as their relatives, legal entities directly or indirectly controlled by the above persons or persons acting on behalf of such persons.
Together with the application for listing of its shares on the ASE, the EEPN has to submit copies of any management agreements, full information on the management companies and persons operating them, and the amount of remuneration of the management company. The ASE must be informed immediately of the conclusion of any sub-management agreements and their relevant terms and conditions.
Lastly, the replacement of the managing company as well as any amendments of important terms in the management agreement are stipulated to be 'important facts' in the EEPN's activities in the sense of article 5 para. 5 of the PD350/1985, and as such need to be notified to the public.
Reports
Within two months of the end of each calendar six-month period, the EEPN publishes a six-monthly report on its activities and returns, in which must also be included a list of the investments of its funds with separate reference to each different category of investments. The first report may cover a period longer than six months but not exceeding one year.
With particular regard to ships, the six-monthly reports must include full description of the vessels, the use for which they are intended, the market value, any eventual encumbrances, and any additional information considered useful for the investors to evaluate the company's investments.
The six-monthly reports are drawn up on the basis of the valuation procedure provided for the shares and vessels of the EEPN. The reports are submitted to the Capital Market Committee and are published in two daily financial newspapers, one based in Athens and another one distributed countrywide.
In addition to these six-monthly reports, the EEPN must publish the financial reports and accounts required from any listed company.
Taxation
The law provides extensive tax benefits for the EEPN, such that the taxation status already provided for the operation of an ordinary shipping company is maintained. To avoid interpretation issues and grey areas, the law is detailed.
The income deriving from the EEPN as well as the income acquired by shareholders, whether in the form of dividends or in the form of capital distribution or unearned increment, is exempt from all direct or indirect taxes, contributions or withholdings. The above provision confirms that the tax exemption on 'shipping income' is also applicable on EEPN companies. In view of the fact that between the EEPN and the shipowning companies may be interposed one (or more) layers of sub-holding companies, the law also considered it necessary to clarify that the exemption on shipping income provided by articles 29 and 35 of L.814/1978 applies also as regards the distribution of net profits or dividends through the interposition of a second holding company.
The EEPN is also exempt from stamp duties as well as any taxes, contributions, rights or other encumbrances in favour of the state or any third party on the EEPN capital.
Similarly, the act for the formation or dissolution of the EEPN and any transfer of contributions in kind to it, any capital increase, the shares issued by the EEPN as well as the acquisition by the EEPN of shares of ship-owning or ship management companies, are exempt from all taxes direct or indirect, including indicatively transfer tax, tax for the accumulation of capital, as well as any dues, contributions, rights or any other charges in favour of the state, legal persons of public law and any third parties. The provisions of articles 2, 25 and 26 of L.27/1975 apply to tax on unearned increment deriving from the contributions in kind to the EEPN or the dissolution of the company.
The inheritors of EEPN shares are specifically exempted from inheritance tax.
Transactions on EEPN shares are charged with the tax provided by the applicable legislation on taxation of stock exchange transactions, which presently is 0.3%.
It is believed that the new legislation fairly sets the rules of the game by establishing a sufficient degree of transparency and briefing of the public on shipping practices, rules for the protection of the investors as well as a diversification of the risks associated with the industry; at the same time it attempts to attract to the national Ship Registry the fleet of Greek-owned vessels and reinforce the seamen's social security organisation, which has always been the intention of the Greek state.
Whether the new legislation will succeed in its objectives greatly depends on the reception it gets by all parties involved, but above all by shipping companies, who are now called upon to balance the benefits of going public and acquiring an alternative source of raising capital against adjusting the long-established, and long successful, 'family business' model of shipping.
