Greece has opted not to go ahead with a seven-year benchmark on Tuesday, taking a cautious stance after a brutal sell-off roiled equity markets.
The mandate for the trade, set to be its longest issue since returning from market exile last year, was formally announced on Monday with leads Barclays, BNP Paribas, Citigroup, JP Morgan and Nomura saying it would come in the near future subject to market conditions.
While this is standard phrasing on mandate announcements, the assumption was that the issue would price on Tuesday.
“It normally means the next day but given what’s happened with stock markets, we felt it would be prudent to wait for some stability,” a lead manager said. “Greece doesn’t do deals very often and wants to make sure it works. They’re not in any rush.”
The decision not to proceed contrasted with business as usual for higher rated borrowers. Finland for example is set to print a 3 billion euro April 2034 benchmark on over 9.25 billion euros of demand.
“Our plan has not been changed, we will issue a seven–year bond in the next coming days but we also watching markets very closely on a day by day basis,” a government official said. “The specific day of the issuance has not been decided yet, we said in the near future on Monday, not on Tuesday,” a second official said.
Greece, which is due to exit its third bailout program in August, has been eager to prove that it can stand on its own two feet, and access to new money in the seven-year part of the curve will be its boldest move yet.
“It’s the right decision,” said a banker away of the delay. “They’ll be able to come tomorrow, it will do fine and execution shouldn’t be overly tricky.”
World stock markets nosedived for a fourth day running on Tuesday, having seen 4 trillion US dollars wiped off from what eight days ago had been record high values.
The yield on Greece’s August 2022 bond has risen to 2.97 percent bid on Tuesday morning, up from 2.82 percent the previous session.
“[The Greek bond] is obviously one of the higher risk instruments,” said another banker away.
The sovereign is rated Caa2/B/B-/CCCH by Moody‘s/S&P/Fitch/DBRS, all with positive outlooks.
“The question will be whether we’ve seen a fundamental change in markets and how investors will respond to that. It looks like the majority does not believe this is doomsday but rather shows how fragile the equity market is.”
While S&P lauded fiscal and economic improvements when it upgraded Greece by a notch on January 19, it noted that the sovereign’s debt burden remains high at 178 percent of GDP in 2017.
“Greece will still be a bit of a struggle to get more widely bought,” said an investor. “It feels quite early in terms of structural money, but we’re having a bit of a look. It does feel like the fundamental story is improving.”
He said road bumps include the high debt burden and ongoing discussions around debt relief as the country looks to exit its bailout.
Some bankers think higher debt-servicing costs are the last thing Greece needs.
Issuing a bond would be more expensive than the ultra-cheap loans Greece receives from its creditors, although the return to market funding could impress rating agencies and place its recovery on a path akin to what Portugal or Cyprus have achieved, others pointed out.
The plan to achieve such a virtuous cycle is logical but ambitious, according to a Societe Generale report published in January.
“For this plan to stand the best chance of working, not only will Greece need to play its part, but European growth will also need to remain robust, and global markets will need to remain risk-on, as they have been over the past three years,” it said. [Reuters]