Wednesday, July 19, 2017

Greek Bond Sale Is Said to Be Delayed by IMF Debt Cap Rule

By Viktoria Dendrinou  and Nikos Chrysoloras
19 Ιουλίου 2017, 12:43 π.μ. EEST 19 Ιουλίου 2017, 11:48 π.μ. EEST


Greece’s much anticipated return to bond markets this week has been held off partly due to a ceiling set by the International Monetary Fund on the amount of debt the country can hold, according to three officials familiar with the matter who asked not to be identified as the talks are confidential.

The officials said the Washington-based IMF, which is expected to discuss on Thursday a new credit line to Greece, has set a cap on the amount of debt the country can hold. The debt ceiling is included in a series of documents agreed on between Greek authorities and the IMF that were prepared before the meeting of the Fund’s board, including a letter of intent and outlining bailout parameters and commitments and the reforms Athens must undertake.

The cap is such, the officials say, that the country can’t issue any more debt until it repays some of what it owes, meaning it has to wait until at least July 20 when it will pay another 4 billion euros ($4.6 billion) on bonds held by the European Central Bank. One of the officials, however, said that even after Greece repaid the ECB, its overall stock of debt would remain too high to issue new bonds under IMF requirements.

The officials involved in the discussions expect the issue to be addressed quickly and that Greece will be able to access markets soon. A way around the debt ceiling could be for Greece to access the markets without increasing its debt stock outright, using instead tools like swaps, which could improve its maturities profile without increasing the overall load.

A finance ministry spokesman said that the government does not comment as to when or how Greece will return to financial markets.

Greece has been mulling an attempt to access the markets for the first time since 2014 since an agreement by euro-area finance ministers in June cleared the way for 8.5 billion euros in fresh bailout cash, ending months of speculation over whether Athens would meet large bond payments due in July.

Greek bonds rallied on the news of the deal, with yields on notes across maturities hitting successive multi-year lows. Yields on 2019 notes rose 4 basis points to 3.5 percent on Wednesday morning in Athens.

Despite investor optimism, the IMF has insisted Greece’s 315-billion-euro debt -- the biggest in Europe as a percentage of gross domestic product -- needs a generous restructuring to become sustainable, even after euro area finance ministers outlined some possible measures to ease repayment terms. The Fund has said the disbursement of any further loans to the country will be contingent on Greece’s euro area creditors offering more clarity on the measures they will take to ease the country’s debt load.

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