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IIF warns against debt buy back plan for Greece

By John O'Donnell

A tentative plan to further restructure Greek bonds owned by private investors risks undermining the euro zone's credibility, a senior bank industry representative said on Tuesday.

The Institute of International Finance (IIF), which helped coordinate a large writedown of Greek bonds owned by banks and pension funds earlier this year, said any further effort to have the private sector carry the can would be taken badly and could wreck Athens' chances of raising money from the markets in the future.

The comments from the IIF's deputy managing director came as euro zone finance ministers were meeting to consider a proposal for Greece to buy back a portion of its private-sector debt at a deep discount, thereby lightening its overall debt burden.

"Debt restructuring was clearly explained to investors as a one off, as unique, not to be repeated,» Hung Tran told Reuters.

"If they do restructure again, their own credibility is at risk,» said Tran, who was closely involved in a «haircut» carried out in March which handed losses of around 75 percent to private bondholders and reduced Greek debt by 100 billion euros.

The proposal being discussed by ministers on Tuesday is somewhat different, but would still constitute an overhaul of Greek bonds.

The plan as explained to Reuters would involve Greece offering private-sector bondholders around 30 cents for every euro of Greek debt they own, allowing Athens to pay down some of its vast outstanding obligations.

Depending on their maturity, Greek bonds are currently trading at between 20 and 30 cents on the euro.

The private sector still holds about 60 billion euros of Greece's total 340 billion euros of sovereign debt, and officials told Reuters the buy-back could cover 30-40 billion of the 60 billion. Depending on the price, such an operation could knock 20 billion euros of more off Athens' debt mountain.

Tran, whose organisation represents around 400 of the world's largest banks and insurers, was critical of the idea.

"An attitude of the official sector that views the private sector as a source of funding after the earlier unprecedented debt forgiveness would be badly received,» he said, adding that it could undermine Greece's chances of borrowing in the future.

Tran warned that any attempt to coerce investors into taking such a discount, by using collective action clauses that force a minority of dissenters to accept, would exacerbate the problem.

There is no indication at this stage that the plan, if put into effect, would involve CACs.

"That would be an abusive use of CACs. It would be a very bad faith action on the part of the authorities,» said Tran, adding that it would prompt investors to fear similar moves by other struggling euro zone countries.

Greek debt is forecast to reach almost 190 percent of economic output next year. The International Monetary Fund says it needs to be cut to 120 percent of GDP by 2020 if the debt level is to be sustainable in the long run.

[Reuters]

ekathimerini.com , Wednesday November 21, 2012 (03:11)  
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