Greece, Bankers Expect Debt-Swap Deal This Week

Bloomberg

By Marcus Bensasson and Maria Petrakis - Jan 29, 2012 9:56 AM GMT+0200

…bonds issued in the swap should have a coupon “well below” 3.5 percent for the period to 2020 and below 4 percent over the 30 years. As recently as Jan. 23, private investors wanted the new 30-year bonds to have an average coupon of about 4.25 percent…

Greece and its private creditors said they expect to complete a debt-swap accord this week after bondholders signaled they would accept European government demands for lower interest rates.

The sides are “close” to completing a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean- Claude Juncker, the Institute of International Finance, negotiating on behalf of private creditors, said in an e-mailed statement in Athens yesterday.

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.

Juncker, who also leads the group of euro-area finance ministers, said Jan. 24 that bonds issued in the swap should have a coupon “well below” 3.5 percent for the period to 2020 and below 4 percent over the 30 years. As recently as Jan. 23, private investors wanted the new 30-year bonds to have an average coupon of about 4.25 percent, two people familiar with the talks said then. That offer equated to a loss of about 69 percent on the net-present value of Greek debt.

Bondholders agreed with European officials three months ago to implement a 50 percent cut in the face value of more than 200 billion euros ($263 billion) of debt by voluntarily swapping bonds for new securities. A worsening economy since then has made it more difficult to achieve a goal of cutting Greece’s debt to 120 percent of gross domestic product by 2020.

‘Further Progress’

An accord with bondholders is tied to a 130 billion-euro, second bailout from Greece’s European partners and the International Monetary Fund for the country, which faces a 14.5 billion-euro bond payment March 20.

“Further progress was made, building on the understandings reached Jan. 27 on the key legal and technical issues,” the IIF said in its statement yesterday.

It said it expects the deal to be finished in the new week “as discussions on other matters move forward,” in a reference to Greek government talks with the so-called Troika of the European Union, the IMF and the European Central Bank about steps required for the disbursement of the second bailout.

Private investors hold about 60 percent of Greece’s 350 billion euros of debt. The IIF is an industry group with more than 450 members.

Structural, Pension Changes

Greek Finance Minister Evangelos Venizelos separately said yesterday a final debt-swap pact will be concluded in the new week.

The next several days will shape Greece for the next decade, Venizelos said. In addition to the debt swap, “We have labor, structural reforms and pension issues to resolve,” he told reporters in Athens late yesterday after meeting with troika officials. “There must be a national pact forged with unions and employers,” he said.

Today, Prime Minister Lucas Papademos is scheduled to meet the leaders of Greece’s political parties to discuss the second bailout, ahead of a summit of European Union leaders in Brussels tomorrow.

Greece now requires 145 billion euros for the second bailout, 15 billion euros more than was agreed in October, Der Spiegel reported yesterday, citing an unidentified official from the troika in Greece.

IMF Managing Director Christine Lagarde told Bloomberg Television Jan. 28 in Davos, Switzerland, that Greece needs to make more headway in overhauling its economy.

Budget Oversight

“We’re not terribly positive about what has been done, but we want to put together a program for the country,” she said. “The country itself has to provide the adjustment.”

As a possible condition of the bailout, European policy makers are discussing plans to directly intervene in Greek budget decisions as the country struggles to cut its deficit, two euro-region government officials said yesterday.

Under the proposal, European institutions would have powers to implement austerity measures agreed under the terms of Greece’s bailouts, said one of the officials, who declined to be identified because the talks are confidential. The plan would accelerate decision making and strengthen the power of troika officials overseeing Greece’s budget, the person said.

The Greek government rejects the plan because it’s contrary to national sovereignty, a Greek official said yesterday. A German finance ministry spokesman declined to comment. The French finance ministry didn’t immediately return a call seeking comment.

Following a report in the Financial Times yesterday that Germany is proposing the creation of a commissioner with the power to veto budget decisions by Greece, the European Commission said that executive tasks must remain the full responsibility of the Greek government.

“That responsibility lies on their shoulders and it must remain so,” commission economics spokesman Amadeu Altafaj said in an e-mailed statement yesterday.

It also said, “The commission is committed to further reinforce its monitoring capacity and is currently developing its capacity on the ground.”

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net