Holders of hybrid and subordinate bonds and preference shares in National Bank of Greece who did not participate in the bank's debt-for-equity swap (LME) will have their holdings turn into common shares after a haircut, the Greek government said on Tuesday.
"The cabinet decides the compulsory force of the measures… In this way, the burden on the public debt will be minimized," a cabinet decision published in the official journal said.
The haircut will be 70 percent for hybrid bonds and 22 percent for subordinated bonds but will not affect holders of senior secured bonds, an NBG official said. The bank says the holdouts held bonds worth about 100 million euros.
The enforced haircut is roughly in line with the debt-to-equity offer accepted by other bondholders.
Holders of some $316 million in preference shares issued in the United States will incur an effective 70 percent haircut. The Greek state will suffer a 71 percent haircut on 1.35 billion euros of preference shares issued in 2008 during a previous recapitalisation of the Greek lender.
The burden-sharing measures were a legal requirement for the bank to receive EU-approved state aid for its latest recapitalisation in the form of convertible bonds (CoCos) and common shares.
"The market was expecting the cabinet's decision", Manos Chatzidakis analyst at Beta Securities told Reuters.
Greece's largest lender was found to have a capital shortfall of 4.6 billion euros ($4.86 billion) under an adverse scenario in a European Central Bank health check in October.
It has raised about 1.28 billion euros through a bond-for-shares swap, a share placement to international investors and other actions approved by the ECB. It also raised 300 million euro from a share offering to domestic investors.
A shortfall of 2.7 billion euros under the adverse scenario remains to be filled through state aid.