Tuesday

4th Oct 2022

Greece clinches do-or-die bond-swap deal

  • 'Greece is only buying time with this and has to do its homework' (Photo: danoots)

The Greek government on Friday (9 March) said it has secured the voluntary participation of 85.8 percent of bondholders in a debt restructuring deal allowing it to avoid a messy default and to receive the second bail-out.

But forced losses to be imposed on some investors are still an issue to be discussed by eurozone finance ministers in a conference call later in the day.

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"On behalf of the republic, I wish to express my appreciation to all of our creditors who have supported our ambitious program of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour," finance minister Evangelos Venizelos said in a press statement on Friday.

The tender for the bond-swap operation, aimed at slashing some €100 billion off Greece's debt, was closed on Thursday at 21.00h Brussels time. It saw 85.8 percent of mostly European banks and funds take up the offer for the new bonds, while 5.3 percent rejected them.

The participation rate is high enough for the so-called private sector involvement (PSI) operation to be deemed successful - a pre-condition for eurozone finance ministers to rubberstamp the €130 billion bail-out for Greece on Monday.

But the Greek government is now likely to impose losses on some other 10 percent of investors via 'collective action clauses' - a move which eurozone finance ministers will discuss in a conference call starting Friday at 14.00h Brussels time.

Meanwhile, in London, the International Swaps and Derivatives Association (Isda) will convene to decide if the use of these retroactive clauses is considered a "credit event" - which would mean that investors who bought insurances against Greece defaulting would have the right to claim that money. Market estimates put the total amount of these 'credit default swaps' on Greek debt around €2.4 billion, DowJones reports.

The bond-swap news was greeted with sighs of relief on Friday morning, with Asian markets rising and Spanish and Italian borrowing costs on ten-year bonds diving below five percent.

French finance minister Francois Baroin told RTL radio that the PSI results were"good news" and "something that allows us to stay on a voluntary basis that avoids the risk of default."

But investors remain sceptical as to what will happen to Greece in the long run.

Michael Kemmer, general manager of German bank association BdB, told Bloomberg: "We can't think that Greece is saved and the crisis is over. This is an important step - the private sector showed solidarity. Despite all the justified happiness about this issue we have to note that Greece is only buying time with this and has to do its homework and pursue budget consolidation, savings and its privatisation programme."

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