Warrants’ price rise a good omen

Foreign investors’ swing this month in favor of Greek securities (warrants) issued after last year’s debt restructuring (PSI), which are connected to specific targets on the nominal gross domestic product and the Greek economy’s growth rate, constitutes another sign that the markets have gradually started to show their confidence in Greece and its efforts to return to growth.

Those warrants were issued along with the new Greek bonds last spring to those who participated in the PSI. According to the process, if the Greek economy meets specific targets, then the owners of the warrants will benefit from the payment of their coupons.

What has been most impressive in the last few weeks is that those warrants have posted a major increase in price, especially since the conclusion of the inspection by Greece’s creditors on April 15. Since then, the value of warrants has soared by 36.5 percent, with market analysts stressing that this development shows investors have started to believe in Greece again. They seem to be increasingly convinced that this country will be able to make its targets and possibly return to growth at an earlier date that currently forecast.

Taking stock of developments such as the successful completion of the creditors’ inspection, the Eurogroup’s approval of the twin bailout tranche, the completion of OPAP’s privatization, the government’s determination to proceed with reforms, the hitherto smooth execution of the budget and Fitch’s upgrade of Greece’s credit rating this week, investors are rushing to buy Greek warrants so that they can reap capital gains soon.

The nominal value of the warrants amounts to 62.38 billion euros, but their actual value will never reach that level. At best, the holders will get 18.6 percent of their nominal value, and that’s in installments within 28 years. In essence, investors appear to be prepared to take a bet that seems hard to win, as the warrants will start getting paid out in 2015 only if Greece’s GDP reaches 210.1 billion euros in 2014, from an estimated 185 billion this year.