Greece inching towards target in bond swap

Greece remained confident on Wednesday that more than 75 percent of its bondholders would voluntarily take part in a debt restructuring scheme designed to reduce the amount Athens owes by more than 100 billion euros.

“We are optimistic that we will exceed the 75 percent participation threshold by far based on the data we have so far,? a Finance Ministry official who declined to be named told Reuters.

The Institute of International Finance, which has been leading the debt talks for large private creditors, said firms holding 84 billion euros of Greek bonds have agreed to the deal. The 32 firms include 12 international banks and investment funds that already declared their participation on Monday as well as all major Greek and Cypriot banks.

Three Cypriot banks, which hold almost 5 billion euros of Greek bonds, said on Wednesday they would participate in the restructuring.

On top of that, Finance Minister Evangelos Venizelos said some 14 billion euros in bonds owned by Greek investment funds but managed by the central bank would also be added to the debt relief.

Greek pension funds which hold 2.7 billion euros of Greek debt agreed on Tuesday to submit their bonds for a haircut.

Under the deal, private creditors will swap their Greek bonds for new ones with a face value reduced by 53.5 percent, longer repayment deadlines and lower interest rates. Overall, they will lose some 75 percent on their bondholdings.

Greece needs to reach a voluntary participation rate of 66.7 percent of investors holding 177 billion in bonds issued under Greek law.

As of Wednesday afternoon, Athens appeared to be close to this target (Reuters estimated that more than 120 billion euros in bonds have been committed to the deal) although calculations are complicated by the fact that 18 million euros worth of Greek bonds held by investors are written in UK law.

In most of the foreign law bonds, 75 percent of investors have to vote in favor of the deal to make it binding for all. However, in contrast to the Greek law bonds, the voting for the foreign law bond takes place separately for each individual issue. That means it is much easier for speculators to buy blocking majorities and derail the swap for certain bond issues.

The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the 130 billion euro bailout agreed last month.

With the bond swap offer expiring on Thursday night, the latest commitments bring the declared total closer to the two thirds minimum level needed for Greece to enforce losses on any holdouts, ensuring the deal goes through.

Amid signs that acceptances had picked up strongly on Wednesday, a string of international banks and insurers, ranging from Germany’s Munich Re to Bank of Cyprus declared they would back the deal.

But after months of tortuous negotiations and repeated setbacks, senior bankers and officials remained cautious ahead of the deadline.

“About the private sector deal – I don’t have a crystal ball. I cannot predict this with certainty. But I repeat, for us, this is a condition,» Dutch Finance Minister Jan Kees de Jager told parliament.

[Kathimerini English Edition, Reuters

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