Buyback paves way for tranche

Greece expected to announce success of debt reduction scheme, which will prompt release of next installment

Greece is expected to announce Monday the successful execution of its bond buyback scheme thanks to interest from hedge funds and local banks, which will allow Athens to reduce its debt by about 20 billion euros and secure the release of its next tranche of funding from the eurozone and International Monetary Fund.

Finance Ministry sources said on Saturday that the target of collecting about 30 billion euros’ worth of offers for the buyback had been achieved. It is thought that hedge funds offered about 15 to 16 billion euros of Greek paper, while local banks will contribute up to 16 billion euros.

This would allow Greece to spend about 10 billion euros to buy back 30 billion euros’ worth of bonds, reducing its debt by 20 billion.

Despite the fact the deadline for the auction, which had set a price range of between 30.2 and 40.1 percent of the principal amount, was on Friday evening, there were no final results on Saturday. This was because there were offers at various prices for 20 different types of bonds, which meant officials had to work out which combination would achieve the biggest debt reduction.

Greek banks were hoping that there would be a big enough participation from foreign hedge funds to allow them to hold on to some of their Greek bonds, thereby preventing further losses in the future when the paper reaches maturity. “If need be, Greek banks will take part with all the bonds they hold [estimated at 15 billion euros],” one local banking source told Kathimerini.

The successful completion of the buyback would clear the way for the eurozone and the IMF to allow the disbursement, following a Eurogroup and EU leaders’s summit on Thursday, of Greece’s next bailout tranche of 34.4 billion euros.

This would leave the government with the task of voting through Parliament the new tax code it has prepared and passing legislative acts for some of the structural reforms approved earlier this month in order to complete its bailout commitments for this year.

It will have to meet specific fiscal targets at the beginning of next year to secure the release of another 9.3 billion euros of loans from the EU and IMF.