Friday November 21, 2014 Search
Weather | Athens
19o C
11o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Swift market comeback could be game-changer for Greece

By Marius Zaharia

Greece could be on the verge of making one of the fastest market comebacks of a defaulted sovereign ever recorded.

To the surprise of doomsayers who just two years ago reckoned its debts were so big that only a return to a devalued drachma could save it from decades of ruin, Greece is now mulling a five-year bond sale within the next three months, according to a Finance Ministry official.

The plan to return to capital markets just over 24 months after its debt restructuring amounted to default appears to make little sense on paper.

Estimates of Greece's potential market borrowing costs over five years range from 3.25 percent to 6.5 percent - indicating that even the most optimistic scenario is more than double the roughly 1.5 percent cost of borrowing from the European Union.

But if Athens can persuade private bond investors to buy 1.5-2 billion euros so shortly after imposing heavy losses on them, it could be a game changer that boosts its ability to repay its debts at affordable interest rates.

It would not only raise confidence in Greece's ability to fund itself and aid its recovery, but it also offers Europe the chance to claim its widely criticized crisis medicine of tough cuts and austerity was necessary and ultimately successful.

"It would be hugely important for them in a symbolic way," said Hung Tran, executive managing director at the Institute of International Finance, a global financial industry body that negotiated Greece's debt restructuring in March 2012.

"The government wants to have the narrative that Greece has overcome the crisis and regained international confidence... If you look at it from the eurozone's perspective you might consider (Greece's progress)... a success story."

Since Mongolia became the first sovereign to restructure its bonds in 1997, it has taken an average 4.5 years for countries to come back to the market, with almost half of those countries still locked out, IIF data show. Considering only those that regained market access, the average time was 3.3 years.

Thirty-four countries have restructured their bonds over the intervening 17 years. Prior to 1997, states had only renegotiated loans.

When it restructured its debt, Greece exchanged its old bonds for cheaper ones coming due in the next 10-to-30 years. It has no liquid bonds maturing earlier than that, so estimating what would be its five-year borrowing costs is a tough task.

Piraeus, Greece's second largest bank, issued a three-year bond two weeks ago at a yield of roughly 5 percent.

Taking that as a proxy, and adding a premium for the longer maturity and Greece's lower ratings, Isabelle Sanson, a fixed income portfolio manager for Natixis AM, estimates Greece could issue at 6 to 6.5 percent - equal or slightly lower than its 10- and 30-year secondary market yields.

Fadi Zaher, head of bonds and currencies at Kleinwort Benson, thinks the cost should be at least 300 basis points over Italy's, or roughly "5-6 percent."

None of them would buy Greek bonds for that price though, saying Greece's debt burden of roughly 170 percent of economic output still poses significant repayment risks.

Yet, optimists say tapping real demand for this paper could become a virtuous circle. Greek bondholder Hans Humes, chief investment officer at Greylock Capital, said costs should be as low as 25 bps above Portugal's, or about 3.25 percent.

For a start, high borrowing costs are not always a deterrent for issuers where proof of access is paramount. When it came back to the market after a two-year post-bailout hiatus, Ireland issued five-year bonds at 5.9 percent in 2012.

Strong demand at the sale acted as a catalyst for further falls in yields and now they trade around 1.65 percent. Portugal came back after a similar break with a five-year bond at 4.9 percent in 2013. Now those bonds trade at 3 percent.

"Sure, the costs are a bit higher when coming to the market but the sooner they do it the better," said Humes, who believes Greece's debts to the private sector are so small compared to those owed to the EU and IMF that another haircut imposed on private investors makes little sense.

"Selling to a voluntary market on a new issue basis is a game-changer," he said.

Another reason why analysts believe Greece is considering this sale is that a strong result could earn some points for the ruling parties before the European elections in May.

But such timing would be another reason to worry for some investors. The anti-bailout SYRIZA opposition party is leading in polls and a win at the EU elections could strengthen its calls for early national elections in Greece.

The government only has a three-seat majority in parliament so early elections are a constant risk.

"It's a political decision (to come back to the market). It's a good time for the public opinion to show that austerity measures have not been unnecessary," said Sanson of Natixis. "But I'm not sure I would want to invest in Greece especially before the European elections ... SYRIZA is an anti-euro party and there is still a lot of uncertainty."

Greece's ruling parties would not be the only ones boasting about a successful sale. Many political leaders across Europe would try to capitalize on it too.

Other observers say politicians will be more restrained.

Analysts attribute most of the rally in lower-rated bonds - Greece's 10-year yields have fallen to 6.50 percent from over 30 percent in the past two years - to European Central Bank President Mario Draghi's promise to "do whatever it takes" to save the eurozone.

Major reforms such as transforming the euro area into a fiscal and a banking union are still yet to be completed.

"One can also make the case that (the easing of the eurozone crisis) comes from the ECB's promise to keep the euro intact ... and that fundamental reforms made some progress but nowhere near what needs to be done," said Tran at the IIF. [Reuters]

ekathimerini.com , Tuesday April 1, 2014 (13:48)  
Louis to bring third cruise ship to Greece
Current account surplus widens
Banks see light at end of bad loan tunnel
Reports point to economic recovery but also the risks
Greek police investigating suspected ISIS gun supply routes
Greek police are investigating reports according to which criminal rings are transporting weapons from Albania to Jihadists involved in Islamic State activities in Syria via Greece, Kathimer...
Venizelos, Papandreou agree to disagree over PASOK
PASOK leader Evangelos Venizelos is due to meet former Prime Minister Costas Simitis on Friday as he continues his efforts to generate a greater sense of unity in his party after holding tal...
Inside News
BASKETBALL
Big win for Greens, tight one for Reds
Panathinaikos scored a crucial as well as emphatic away win at Turow on Thursday that should see it qualify from its tough group to the top 16 of the Euroleague, while Olympiakos saw off vis...
SOCCER
Super League in disarray, lockout continues
The situation in Greek soccer is going from bad to worse, with accusations flying between club officials, the head of the Super League announcing he will quit on Monday and the leagues remai...
Inside Sports
COMMENTARY
Who lost Greece?
If, by unhappy chance, Greeces efforts to create a more efficient economy and more just society should fail, if it turns out that all our sacrifices were in vain, who will be to blame? The ...
COMMENTARY
Suicidal moves
In a country of complete inertia where virtual reality reigns supreme ranging from Greece exiting the crisis to the countrys absolute destruction the arbitrary dissemination of rumors r...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Big win for Greens, tight one for Reds
2. Louis to bring third cruise ship to Greece
3. Current account surplus widens
4. Banks see light at end of bad loan tunnel
5. Reports point to economic recovery but also the risks
6. Greek police investigating suspected ISIS gun supply routes
more news
Today
This Week
1. Current account surplus widens in September
2. House committee says LAOS chief should face charges
3. Papantoniou second pothen esches trial postponed
4. Greeks not satisfied with living conditions, work, study finds
5. Evros municipalities damaged by floods
6. Teleconference for Hardouvelis and troika on Thursday
Today
This Week
1. Double quake on Atalanti fault line rattles Greek capital [Update]
2. Greece and Poland switch roles as young Greeks head to vibrant Eastern European country for better prospects
3. Constructively disrupting the Greek start-up ecosystem: What will the impact be?
4. Anti-junta uprising anniversary to be marked amid tight security
5. Carlsberg takes control of Greek brewer Olympic Brewery [Update]
6. Biden heads to Istanbul amid tension over Cyprus EEZ violation
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.