ECONOMY

New round of debt restructuring talks begins

Greece is due to continue on Thursday talks with banking representatives aimed at agreeing a haircut for private investors holding Greek debt.

Charles Dallara, head of the International Institute of Finance representing private creditors, and Greece’s prime minister Lucas Papademos met on Wednesday to pick up discussions from where they had left off last week, when the two sides failed to agree on the interest rate Greece will offer on new bonds and a plan to enforce investor losses.

No statements were made after Wednesday?s meeting.

“They are working hard to breach differences and they will continue tomorrow,» a source close to the talks told Reuters.

In an interview with the New York Times that was published on Wednesday, Papademos confirmed that Greece is considering retrofitting its bonds with Collective Action Clauses (CACs) if the participation in the voluntary debt restructuring is not high enough.

?It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,? Papademos said. ?It cannot be excluded. It is contingent on the percentage.?

With 14.5 billion euros of bond redemptions due in late March, Athens is under pressure from the IMF and its eurozone partners to conclude a deal quickly and avoid a disorderly default.

It will take weeks to process the paperwork after a deal is reached and Greece’s foreign lenders have warned and that the work must be cleared before Athens can receive any further bailout loans.

Papademos told the New York Times he was hopeful that an agreement could be reached this week.

?The talks are not straightforward, because they aim at a voluntary restructuring of public debt, and to achieve a number of objectives simultaneously, objectives that involve trade-offs,? Papademos said.

?Taking into account the complexity of the exercise, I would say that we are very close to reaching an agreement.?

The Greek government wants to swap out that maturing debt for new, lower-yielding bonds and a small cash payment as part of a programme in which bondholders would voluntarily write down 100 billion euros from Greece’s debt of over 350 billion euros.

But some hedge funds that snapped up chunks of Greece’s next big maturing bond, the March 20 2012 issue, for around 40 cents on the euro, are balking.

The debt swap deal would see creditors voluntarily giving up 50 percent of the nominal value of the bonds they hold.

The real loss, known as net present value, is estimated at between 60 and 70 percent depending on the coupon, maturity and discount rate. The hit on individual banks would also depend on the price at which they bought Greek bonds.

The main stumbling block in the negotiations has been the low coupon, or interest payment, offered on the new bonds.

[Kathimerini English Edition