Greece makes bold of­fer to buy back debt

A suc­cess­ful buy­back could pave the way for more money from IMF.

Austin American-Statesman - - BUSINESS - By Lan­donthomas New york Times French Fi­nance Min­is­ter Pierre Moscovici (left) talks with Lux­em­bourg’s Prime Min­is­ter Jean-claude Juncker in Brus­sels on Mon­day. yves log­ghe / as­so­ci­ated PRESS

In a bold bid to re­duce its debt bur­den, Greece of­fered Mon­day to spend as much as $13 bil­lion to buy back $39.1 bil­lion of its bonds from in­vestors and banks.

While the buy­back had been ex­pected, the prices of­fered by the government were above what the mar­ket had forecast, with a min­i­mum price of 39 cents and a max­i­mum of 52 cents, for a dis­count of 60 per­cent to 70 per­cent.

An­a­lysts said they ex­pected that the av­er­age price would ul­ti­mately be 42 to 44 cents, a pre­mium of about 5 cents above where the bonds traded at the end of last week. Pierre Moscovici, the French fi­nance min­is­ter, played down con­cerns that the Greek debt buy­back might not go as planned.

“I have no par­tic­u­lar anx­i­ety about this,” Moscovici said Mon­day at the Euro­pean Par­lia­ment ahead of the meet­ing in Brus­sels of eu­ro­zone fi­nance min­is­ters to dis­cuss Greece. “It just has to be very quick.”

A suc­cess­ful buy­back is crit­i­cal for Greece. The In­ter­na­tional Mon­e­tary Fund said that it will lend more money to Greece only if it is rea­son­ably able to show that it is on tar­get to achieve a ra­tio of debt to an­nual gross domestic prod­uct of less than 110 per­cent by 2022.

Greece will have at its dis­posal or $13 bil­lion in bor­rowed money from Europe. In­vestors who agree to trade in their Greek bonds will re­ceive six-month trea­sury bills is­sued by Europe’s res­cue ve­hi­cle, the Euro­pean Fi­nan­cial Sta­bil­ity Fa­cil­ity. The of­fer will close Fri­day.

If suc­cess­ful, the ex­change would re­tire about half of Greece’s $81 bil­lion in debt owed to the pri­vate sec­tor. The coun­try still owes about $261.3 bil­lion to Euro­pean gov­ern­ments and the IMF.

Even though Greece is so close to bank­ruptcy, its bonds have be­come one of the hot in­vest­ments in Europe. Large hedge funds, like Third Point and Bre­van Howard, have ac­cu­mu­lated sig­nif­i­cant stakes, start­ing this sum­mer when the bonds were trad­ing in the low teens. Shorter-term traders have been snap­ping up bonds at around 38 cents in or­der to make a quick profit by par­tic­i­pat­ing in the buy­back.

In a re­search note pub­lished Mon­day, an­a­lysts at No­mura in Lon­don said it was “rea­son­able and likely” that enough hedge funds — es­pe­cially those that might be more riska­verse and or a shorter per­spec­tive — would agree to the deal at a price be­low 46 cents.

But there are also for­eign in­vestors look­ing to the longer term who may de­cide to hold onto most of their hold­ings in the hope that the bonds rally even more af­ter a suc­cess­ful buy­back.

“I think the bonds could go to as high as 40 cents (euro) in a nonexit sce­nario,” said Gabriel Sterne, an an­a­lyst at Ex­otix in Lon­don, re­fer­ring to the con­sen­sus view that Greece will not leave the eu­ro­zone any­time soon.

Bond­hold­ers were en­cour­aged by com­ments from Chan­cel­lor An­gela Merkel, re­ported in the Ger­man me­dia over the week­end, that raised the pos­si­bil­ity that Euro­pean gov­ern­ments might of­fer Greece debt re­lief in the fu­ture.

A num­ber of bond­hold­ers ex­pect Greek bond yields to trade more in line with those of Por­tu­gal in the coming years, but with­out the prospect of a fu­ture buy­back to push up the prices of Greek government bonds, the risk to such an ap­proach is sub­stan­tial.

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