Coca-Cola Hellenic Bottling Co. SA's decision to leave its homeequity market in Athens for London increases the chance that Greecewill be demoted to an emerging market next year, MSCI Inc.said.

The index provider put Greece's stock market under review fordowngrade from developed status on June 20 and will make a finaldecision as part of its annual reclassification in June next year.The MSCI Greece Index consists of just two companies, with theworld's second-largest Coca-Cola bottler accounting for 75 percentby weight.

Market size “is the main driver for us to make that proposal,but on top of that, one needs to admit that there are still someoperational issues that have been present since the inclusion ofMSCI Greece in developed markets back in 2001,” Sebastian Lieblich,global head of index management at MSCI in Geneva, said in a phoneinterview yesterday. Coca-Cola's exit is “a very importantdevelopment, and this is something we'd need to assess howinvestors see this move.”

Coca-Cola HBC's departure will shave off about two-thirds of theincrease in Greece's market size since the end of June. Thecountry's largest company by market value is fleeing the epicenterof the euro-area sovereign-debt crisis, saying it wants a morestable economic and regulatory environment. The company will bebased in Switzerland and will trade on the London StockExchange.

Lieblich said that MSCI's decisions are based on consultationswith investors.

MSCI said it won't discontinue the Greece index after Coca-ColaHBC's exit. Any deletions from the gauge will be substituted by thelargest constituents of the MSCI Greece Small Cap Index, it said.There are currently 22 members in the small-cap measure, led byNational Bank of Greece SA.

MSCI will “exceptionally maintain at all times at least twoconstituents in the MSCI Greece Index until further communication,”it said in a statement yesterday. Opap SA, Europe's biggest listedgambling company, is the second stock in the MSCI Greece,accounting for 25 percent of the gauge's weight.

Coca-Cola Hellenic makes up 21 percent of the benchmark AthensStock Exchange Index, followed by National Bank, Hellenic PetroleumSA, Hellenic Telecommunications Organization SA and OPAP, withweights ranging from 8 percent to 5.6 percent.

Shrinking Market

The Greek market has lost about 85 percent of its value sincepeaking at $273 billion in November 2007 as surging borrowing costsforced the government to accept two European Union-ledbailouts.

The market value of the MSCI Greece has risen to 7.9 billioneuros ($10.2 billion) from 6.7 billion euros at the end of June, onoptimism the nation will agree on a new financing package with theInternational Monetary Fund and European partners. The equity valueis still down from 25.8 billion euros in June 2011.

The overall Greek equity market has climbed to 32.2 billioneuros from 23.5 billion euros at the end of June this year. Itwould fall to about 26.1 billion euros once Coca-Cola Hellenic isremoved.

MSCI said in June that restrictions on in-kind transfers,off-exchange transactions, stock lending and short-selling impededGreece from having a fully functional trading place aligned withthose of developed markets. The Greek authorities had not beenreceptive to repeated complaints from the international investmentcommunity, the company said.

“If at one point in time any market doesn't provide enoughstocks to clearly represent the investment-opportunity set, then wemay be forced to consider it for demotion,” said Lieblich. “Thecurrent sovereign-debt issues that Greece is facing are not at allthe trigger point for the reclassification of Greece. It is reallythe size combined with the operational issues which haven't beensolved over the past ten years which we see as a majorconcern.”

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