Business World

Monday 27 January 2020

Greek €206bn debt-restructure deal likely as deadline nears

Policemen protest in Athens yesterday as they occupied their own social security fund building. The police fund has refused to participate in a voluntary bond swap, designed to lighten Greece's debt load by more than €106bn.
Policemen protest in Athens yesterday as they occupied their own social security fund building. The police fund has refused to participate in a voluntary bond swap, designed to lighten Greece's debt load by more than €106bn.
The International Monetary Fund has loaned Ireland an extra three point two billion euro

Gabrielle Steinhauser

Greece inched nearer to a successful €206bn debt restructuring after private sector bondholders representing almost 40pc of securities said they were backing the deal.

Banks, insurers and asset managers holding €81bn in Greek debt have agreed to exchange their bonds for new instruments that will leave them with losses of about 75pc.

About 24 hours before the deadline for acceptances, investors owning around half of Greece's privately held debt had committed publicly to the bond swap, in which they will accept losses to avoid facing even bigger ones in the event of an outright default by Athens.

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For the deal to work -- and for Greece to secure a related €130bn bailout -- Greece needs 90pc of investors to sign up. However, a voluntary participation rate of around 70pc could be enough to force most holdouts to go along.

Greece's financial troubles are the epicentre of Europe's two-year crisis, so successfully lightening its debt load is crucial to the overall plan of keeping the 17-nation euro currency afloat. The euro and stock markets rose yesterday as confidence over the bond swap grew.

The Institute of International Finance, which has been leading the debt talks for large private creditors, said firms holding €84bn ($111bn) of Greek bonds have agreed to the deal.

The 32 firms include 12 that declared their participation on Monday as well as all major Greek and Cypriot banks. German reinsurer Munich Re, which holds some €1.6bn in Greek bonds, also said it would participate.

On top of that, some €14bn bonds owned by Greek investment funds but managed by the central bank will also agree to the swap, Greek Finance Minister Evangelos Venizelos said.

Greek officials are hopeful funds that directly manage another €3bn in bonds will also sign up.

After the latest announcements, officials in Athens and other European capitals sounded optimistic that they would get the necessary participation to make the deal work.

"I am very, very confident," Jean-Claude Juncker, the prime minister of Luxembourg who is also the main spokesman for the euro countries, said when asked about the debt swap.

Under the deal, private creditors will swap their Greek bonds for new ones with a face value reduced by 53.5pc, longer repayment deadlines and lower interest rates.

Overall, they will lose some 75pc on their bondholdings.

Greece says that despite the losses, the debt swap is a good deal for investors, since they would go empty-handed if the country couldn't secure the bailout package from the eurozone and the IMF that is tied to the debt relief.

At the very least, Greece needs to reach a voluntary participation rate of 66.7pc of investors holding €177bn in bonds issued under Greek law.

That number would allow it to force the deal on to holdouts using new legislation it passed through parliament last month.

For some €28bn in Greek bonds -- including €10bn from state-owned companies -- that have been issued under foreign law, forcing investors to participate is more difficult.

In most of the foreign law bonds, 75pc of investors have to vote in favour of the deal to make it binding for all. However, in contrast to the Greek law bonds, the voting for the foreign law bond takes place separately for each individual issue.

That means it is much easier for speculators to buy blocking majorities and derail the swap for certain bond issues.

Adding up the acceptances that have been announced publicly so far takes the participation rate to more than 48pc.

This does not count others who may already have tendered their bonds without announcing so publicly.

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