ECONOMY

Bond swap set to start in August

Procedures for a voluntary swap of privately held Greek government bonds for longer maturity paper will start in August, Alternate Finance Minister Filippos Sachinidis said on Tuesday.

Greece?s private sector creditors will take a 21 percent loss on their bond holdings as part of a 37-billion-euro contribution to a rescue plan for the debt-stricken country, agreed at a euro zone summit last week.

?In the coming days, in collaboration with the [International Institute of Finance, or IIF], talks outlining the exact procedure that will be followed so that holders of Greek government bonds choose one of four options and proceed to a debt swap,? Sachinidis told Mega TV. ?This procedure will start in August,? he said.

The IIF has estimated a take-up rate of about 90 percent for the voluntary program, which gives banks the option of swapping Greek debt for new bonds with maturities of up to 30 years.

Officials want to conduct the voluntary bond swap quickly to minimize the period during which Greece is expected to be in partial default. ?The goal is for this [bond swap] to last as short a time as possible,? Sachinidis said. ?It appears that we will manage to secure a satisfactory participation to proceed with the exchange.?

The creditors will have a choice of bonds: Some will come with a lower coupon but will preserve investors? principal; others entail a loss of principal but will earn more interest.

However, the new bonds will also come with a guarantee on the principal, though not on the interest, according to Sachinidis. Of the 109-billion-euro package, 35 billion will be used to buy collateral that serves as insurance on the bonds newly issued in the exchange.

The IIF, an industry trade group that lobbies for banks and financial institutions, estimates that half of the 135-billion-euro exchanged will be for new bonds with a 20 percent discount; in other words, 13.5 billion euros will be sliced off Greece?s debt load. That debt reduction, combined with the extension in Greece?s debt maturity as a result of the swap, will greatly reduce the country?s immediate financing needs for the next 10 years.