Saturday Jul 26, 2014 Search
Weather | Athens
32o C
23o 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)  
SME minibonds to bypass bank lending
Fitch upgrades Greek banks bond programs
Tanzanias central banks takes over FBME
Trade deficit grows 9.5 pct in Jan-May
Government to push troika for concessions as pressure to meet pledges intensifies
Talks between the coalition leaders last week led to them finalizing the requests that Athens will make regarding the easing of adjustment measures when the troika returns to Greece but Euro...
New Democracy firing staff as it slashes its expenses
New Democracy has begun firing staff from its party headquarters on Syngrou Avenue in Athens as it tries to rein in its spending. Kathimerini understands that 10 members of staff lost their ...
Inside News
SOCCER
Ranieri says he has little to change in Greek national team
The Hellenic Football Federation (EPO) presented Claudio Ranieri as the new Greece coach for the next couple of years, after the Italian manager signed his contract in Athens on Friday. I l...
SOCCER
Olympiakos downs AC Milan 3-0 in friendly
Greek champion Olympiakos defeated Italy's AC Milan 3-0 late on Thursday in a friendly match that launched the International Champions Cup in Canada and the US. The result, with goals from A...
Inside Sports
COMMENTARY
Concrete measures
The governments decision to submit draft legislation on key environmental issues during the Parliaments summer session has raised a fair amount of controversy. Most prominent are the bills...
EDITORIAL
Education needs skills
The Education Ministry has been somewhat unfortunate over the past two years. Other than the myriad problems they have already faced, the politicians who have been appointed to run it contin...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Government to push troika for concessions as pressure to meet pledges intensifies
2. New Democracy firing staff as it slashes its expenses
3. Deadline for Commission successor is looming
4. Cypriot president to meet Greek PM during Athens visit
5. Two killed as single-engine plane comes down outside Sparta
6. Cretan priest missing since early July found dead in ravine
more news
Today
This Week
1. Concrete measures
2. Fitch upgrades Greek banks bond programs
3. Tanzania's central banks takes over FBME
4. Education needs skills
5. SME minibonds to bypass bank lending
6. New Democracy firing staff as it slashes its expenses
Today
This Week
1. Greece seen in third bailout as bonds not enough, economists say
2. Climber dies in Mount Olympus fall
3. Greek sovereign debt at 174.1 percent of GDP in first quarter
4. Unequal after death
5. Hedge fund Dromeus turns Greek tragedy to triumph with 160 pct gain
6. Quadriplegic woman on life support 'dies due to unpaid power bills'
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.