Greece will on Wednesday, or Thursday at the latest, issue a new seven-year bond with the aim of obtaining the liquidity to satisfy the major cash needs that the coronavirus pandemic is generating.
As public expenditure has soared with the government’s measures to support the economy and revenues are showing a dramatic shortfall, the state’s liquidity conditions are rapidly deteriorating. The bill of the support measures for April will runs to about 7 billion euros due to the expansion of the existing provisions with new ones announced this week, and extensions to May and June are also being considered. Credit sector sources say that the state will require a cash flow of 12 to 17 billion euros.
Therefore the main objective of this week’s market foray is to improve the country’s cash flow. A second objective concerns Greece’s presence in the markets: Most states in the European South have already issued debt, putting pressure on Athens to tap the market too, even if the conditions are not ideal.
Currently Greece actually has a strong advantage compared to not so long ago, as it also enjoys the support of the European Central Bank through the country’s participation in the emergency quantitative easing (QE) program. Furthermore, the fact that local lenders can now use Greek bonds as collateral to obtain liquidity from the ECB makes them a more dynamic player in the issues of the Public Debt Management Agency.
The amount of the issue, which will have Citigroup, Commerzbank, Credit Suisse, Morgan Stanley, Nomura and Societe Generale as joint lead managers, will according to market experts range close to the recent Greek government bond issues – i.e. near 2-2.5 billion euros. The seven-year bonds of Cyprus and Portugal, which raised 1.25 billion and 5 billion euros respectively, have been set as benchmarks for the Greek issue, which “should range between those two amounts and definitely at 2 billion euros or more,” according to one market observer.
As for the pricing of the issue, the interest rate could range around 1.7-1.8 percent, although the rise of Greek yields on Tuesday after the issue was announced points to a possible spike in the issue’s rate.