Retooled bailout plan sparks rally
Greek stocks and bonds rallied higher on Monday as the market welcomed news that loan conditions on the country?s 110-billion-euro bailout package will ease but some investors remained cool on Athens? long term debt prospects.
In the early morning hours of Saturday, Euro-zone leaders agreed to extend the repayment period of the 80 billion euros Greece got from its European Union partners to 7.5 years from three years and to slash the interest rate to 4.8 percent from 5.8 percent.
This will save the country around six billion euros in interest, according to Prime Minister George Papandreou.
Greece got that loan, plus 30 billion euros from the International monetary Fund, last May when it was on the brink of default.
In exchange, Athens embarked on a series of austerity measures to bring down its budget deficit from 15.4 percent of gross domestic product in 2009 to below 3 percent by 2014.
The euro-zone leaders also agreed on Saturday that bailed out EU countries can sell their bonds directly to a fund called the European Financial Stability Facility if they are unable to tap the international bond market.
In exchange for the more favourable terms, the Greek government promised to complete a 50 billion euro privatization plan by 2015.
Greek stocks soared 5.15 percent to 1,662.38 points on Monday, led by gains of 8.5 percent in banks. National Bank, the country?s largest lender, jumped 10.12 percent to 7.18 euros while Eurobank EFG gained 9.83 percent to 5.14 euros.
Citigroup said the latest move to help Greece get on top of its debt pile is positive for the country?s banks.
?Greek banks are likely to rally should Greek sovereign debt spreads tighten. The higher the exposure to Greek debt as a percentage of equity, the stronger the rally is likely to be,? said Citigroup in a note to investors.
Buying in banks rubbed off on the broader market. The blue chip FTSE/ATHEX 20 index advanced 6.24 percent to end at 776.76 points.
Power company PPC added 5.30 percent to 12.52 euros and OTE telecom gained 5.14 percent to 8.18 euros – two companies that could soon feature at the top of the goverment?s asset sell off list.
Greek 10-year bonds also rallied on Monday in line with gains in Spanish and Italian government paper.
Yields on 10-year Greek debt fell 50 basis points to 12.16 percent, while those on similar-maturity Spanish debt dropped 14 basis points to 5.29 percent. Italian 10-year bond yields were nine basis points lower at 4.77 percent.
Some investors, however, were less enthusiastic about how well the new measure?s solve Greece?s debt problems.
Standard Life Investments said the retooled EU bailout plan isn?t sufficient to convince its funds to buy Greek and Portuguese debt.
While the new measures will support sentiment in the near term, they fail to change the fundamental picture for a country such as Greece, which has high debt and low growth, Richard Batty, a global strategist at the arm of the Edinburgh-based life insurer, which manages $229 billion of assets, told Bloomberg.
?The saving that Greece will get from the new measures, for example, would be around 6 billion euros, and that really isn?t enough to change the bigger picture,? Batty said.
?The decision is better than we thought, but it?s still a long way to go. We are underweight or out of most of the peripheral markets, apart from Italy. We don?t own Greek or Portuguese debt, and that will remain the case.?