Greece is expected by Monday to announce the successful completion of the bond buyback scheme that is key to the release of its next bailout tranche and the overall program to reduce the country’s debt to sustainable levels by the beginning of the next decade.
The deadline for holders of Greek debt to take part in the auction for their bonds expired on Friday and, according to sources, the participation of Greek banks and hedge funds was high enough for the government to meet its target of buying back more than 30 billion euros’ worth of bonds with the aim of reducing the country’s debt by some 20 billion euros.
Banking sources told Kathimerini that Greece’s four main banks – National, Eurobank, Alpha and Piraeus – submitted all their bonds, with a nominal value of 11.5 billion euros, to the buyback process. The participation of several other smaller Greek banks meant that local lenders submitted a total of 16 billion euros’ worth of bonds.
A total of 63 billion euros of Greek papers was eligible for the buyback. It was not clear last night exactly how big the contribution of hedge funds was.
Sources said local banks are hopeful that investors’ take-up of the offer from the Greek government, which had set a price range of between 30.2 and 40.1 percent of the principal amount, was big enough to allow lenders to eventually hold on to some of the bonds they submitted.
Greek banks were hoping to keep 20 to 30 percent of their bond holdings to minimize their losses. Although Greek banks will make a small short-term gain from the buyback as the bonds had been recorded in their books at a value of 30 percent, Greece’s four main lenders will lose 7.5 billion euros as a result of not holding the bonds to maturity.
Sources said that Greek bankers are hoping that the government will provide other ways of absorbing this cost, such as tax breaks. The success of the buyback should secure the release of further EU-IMF funds, with most of the next tranche going toward bank recapitalization.