IMF puts cap on national debt, hampering bond issue for now

IMF puts cap on national debt, hampering bond issue for now

The government has opted for a “wait-and-see” policy before going ahead with its planned five-year bond issue, its first return to the markets since 2014. It will particularly wait for the International Monetary Fund’s Debt Sustainability Analysis on Thursday, and signs point to Athens avoiding a move before next week.

A report by Bloomberg on Wednesday claimed that the new agreement the IMF is negotiating with Greece sets a limit to the amount of debt the country can have. Greece has apparently reached the limit, so the new bond being planned would have exceeded it, even if the additional debt would be no more than 1 billion euros – the rest of the issue would be covered by swapping old paper with new.

A European official told Kathimerini that Greece would have to wait until Thursday for the payment of bonds of 4 billion euros to the European Central Bank so that the national debt can go down and Athens can add more through a market return.

Government officials responded to the Bloomberg report on Wednesday, saying that there is no problem with the debt limit and adding that this would have been the case only if Greece were to borrow more than 3 billion euros. Instead, most of the new issue will concern the swapping of existing paper, so it will not increase the country’s overall debt. Athens reiterated that it simply thought it better to wait for the IMF’s DSA tonight.

A Reuters report on Wednesday, meanwhile, revealed that the government has already hired six banks to manage the bond issue. Sources told the news agency these banks are Bank of America Merrill Lynch, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs and HSBC.

The same sources added that the issue may go ahead next week, but the timetable remains uncertain as Greece awaits creditor approval. Two other sources said the issue might become part of a liability management exercise.

Markets remained calm for a third day this week after the temporary postponement of the bond issue, with the two-year debt keeping its yield at 3.33 percent, while that of the benchmark 10-year bond edged up from 5.18 percent to 5.23 percent.

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