Tuesday October 21, 2014 Search
Weather | Athens
24o C
11o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Greek debt deal turns hedge fund trade to gold

For a few hedge funds, Greek debt is turning into one of the trades of the year.

News that Athens - backed by euro zone ministers and the International Monetary Fund - will buy back some its own debt from private investors sets a floor under the price of its bonds, handing many who picked them up at rock-bottom levels big gains.

The funds - which include Daniel Loeb’s Third Point - have spent months building up positions in the debt-beleaguered country’s bonds, rightly betting that their price would rise as the risk of a Greek exit from the euro zone receded.

Some have already banked profits from that bet, but indications Athens will target a cost of around 35 cents on the euro in its buyback plan, if successful, is a boon for those still holding the bonds.

“This is very positive and a huge step forward,” Achilles Risvas, chief executive officer of hedge fund Dromeus Capital said. “The probability of a Grexit has decreased significantly.”

Risvas owns Greek bonds currently trading at 28.5 cents on the euro, bonds he bought at 18 and 19 cents.

Hedge funds - secretive funds that can bet on rising or falling prices in a wide range of markets - have often played a controversial role in government bond markets.

Many have attracted criticism for betting against the fortunes of European countries - including Greece - during the euro zone debt crisis, and prompting Europe to ban “naked” short-selling of sovereign credit default swaps (CDS), a product that insures the buyer against default.

For most funds their current Greek debt holdings represent a relatively small position of their portfolios, although the gains can be large.

Others are sitting on even bigger gains.

Third Point, a $9.3 billion hedge fund run out of New York, said in a regulatory statement earlier this month Greek government bonds were one of its top five “Winners” in October.

The fund had bought the bonds for about 17 cents, Loeb told investors in an October 3 letter seen by Reuters.

London-based hedge fund Adelante Asset Management first bought Greek bonds at 12.5 cents. It has sold part of the position, making a 70 percent gain, but CEO Julian Adams said it still has a holding and described the deal as a “good” one.

Adams said the trade was by no means over. “Now the country has a chance to go forward on a more sustainable footing... Plus with all the relief they are getting and the cash you should start to get some growth.”

Euro zone finance ministers and the International Monetary Fund (IMF) agreed on Monday to cut Greece’s towering debt pile by 40 billion euros ($51.72 billion), cutting it to 124 percent of gross domestic product by 2020.

Importantly, ministers also committed to taking further steps to lower Greece’s debt “significantly below 110 percent” in 2022 - a veiled acknowledgment that some write-off of loans may be necessary from 2016.

Athens is yet to give details of the debt buyback - to avoid giving hedge funds an opportunity to push up prices - but one proposal is to borrow 10 billion euros from the euro zone’s rescue fund.

This would allow Greece to buy around 30 billion euros worth of bonds, cutting its outstanding obligations by around 20 billion euros.

However, the buyback will only work if enough investors agree to sell their bonds - by no means guaranteed. Some may prefer to stay out of the deal in the hope that others accept the buyback, cutting Greece’s debt and boosting the value of their own bonds.

“Every bondholder will be aware that if they were the only one not to participate then default probabilities plummet, and we think the strip could be valued at around 50 (cents on the euro),” Gabriel Sterne, an economist at Exotix, wrote in a research note.

Dromeus’ Risvas said a price of 35 cents was unlikely to encourage him to participate, but that the plan was still positive because it sets a floor to the price and - depending on the buyback’s size - it could boost bond prices further.

“It’s like a poker game. You need to understand what everyone else is going to do first,” he said, noting that much depends on how the government proceeds with the buyback.

Using a Dutch auction - where the price is set after taking in all bids and determining the highest price at which enough investors accept a total buyback - is likely to elicit more success than a single across-the-board price, Risvas said.

But while markets and hedge funds reacted positively to the plan, huge risks remain and mainstream investors are still cautious about buying into the debt of a country stuck in the depths of a five year long recession.

“You can flip a coin and you might make some money. But other than for hedge funds...it’s very difficult for us to play it,” said Richard Cookson, Global Chief Investment Officer at Citi Private Bank, speaking at Reuters Global Investment 2013 Outlook Summit held in London on Tuesday. [Reuters]

ekathimerini.com , Tuesday November 27, 2012 (21:56)  
Athens bourse index leaps on big bank gains
Think-tank says political uncertainty slowing investment in Greece
Tax debts to Greek state exceed 70 billion euros
Greek 2013 budget gap revised down to 1.8 pct/GDP
Greek gov´t calls on parties to condemn Maziotis threat
Government spokeswoman Sofia Voultepsi on Tuesday called on all parties to condemn Revolutionary Struggle leader Nikos Maziotis for his “attempt to terrorize” New Democracy MP Adonis Georgia...
Austrian president begins two-day visit to Greece
Austrian President Heinz Fischer begins a two-day visit to Greece on Wednesday, when he is due to meet his Greek counterpart Karolos Papoulias. He also has meetings scheduled with Prime Mini...
Inside News
BASKETBALL
PAOK fans stop coach Markopoulos´s move to Olympiakos
Olympiakos is once again in the lookout for a new coach after the refusal of PAOK to release Soulis Markopoulos, while Panathinaikos defeated Kolossos on Rhodes on Monday to become the only ...
BASKETBALL
Reds lose to Nea Kifissia, search for new coach
Nea Kifissia recorded the biggest win of its short history in the top flight defeating Olympiakos 68-67 on Sunday, in a Basket League weekend marred by the abandonment of the Thessaloniki de...
Inside Sports
COMMENTARY
The ECB collateral for Greece must be lowered to 5 pct
According to recent reports, the European Central Bank plans to reduce the “57 percent penalty,” that is the discount applied to almost all Greek government bonds (GGBs) held as collateral b...
INTERVIEW
The past, present and future of the Greek debt crisis
For a decade, until mid-2012, Josef Ackermann was the CEO at Deutsche Bank. It was a position that earned him the nickname “shadow chancellor” of Germany and allowed him to play a decisive r...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Greek gov´t calls on parties to condemn Maziotis threat
2. Austrian president begins two-day visit to Greece
3. Athens police arrest teen suspected of abduction, burglary
4. Athens bourse index leaps on big bank gains
5. Greek farmers warn they´re warming up for protests
6. Accomplice of Greece´s Number 1 fugitive arrested while trying to leave country
more news
Today
This Week
1. The past, present and future of the Greek debt crisis
2. Gang importing heroin into Greece busted
3. Self-opposing coalition
4. Gutsy rectors
5. Applications for heating oil subsidy set to start
6. SDOE to probe Proton Bank loan to Thessaloniki businessman
Today
This Week
1. Possible third figure in Amphipolis mosaic may be uncovered shortly
2. Greece to contribute 1 mln towards Gaza reconstruction
3. Istanbul skyscraper casts shadow over Greece's banking ambitions
4. Greece nearing bailout exit, says gov't spokesperson after IMF talks
5. Coalition shooting itself in the foot
6. GPO poll gives SYRIZA clear lead over New Democracy
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.