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Greece Extends Debt Buyback Deadline After Nearing Target

By Paul Tugwell
December 10, 2012 8:40 AM EST 7 Comments
The buyback is focused on the 62 billion euros of bonds issued when Greece restructured its privately held debt in March.
Photographer: Kostas Tsironis/Bloomberg
The buyback is focused on the 62 billion euros of bonds issued when Greece restructured its privately held debt in March.

Greece extended the deadline for a buyback of sovereign bonds that’s crucial to unlocking aid from the International Monetary Fund and the European Union.

Investors have until noon London time tomorrow to offer their Greek bond holdings, the Athens-based Public Debt Management Agency said today in a statement. Holders of securities already tendered can’t modify their participation, the agency said, without saying why it lengthened the offer. The original deadline was 5:00 p.m. London time on Dec. 7.

“We’ve taken note of Greece’s decision,” Simon O’Connor, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters today. “We are confident that there is still scope for additional tenders by domestic and international investors.”

Greece was near its target in the buyback with the amount offered close to 30 billion euros, an official at the Greek Finance Ministry said yesterday on condition of anonymity, referring to the face value of the securities. The transaction went “very well,” Prime Minister Antonis Samaras told reporters in Munich yesterday.

Greek 10-year bonds rose, pushing the yield down 55 basis points to 13.91 percent at 1:16 p.m. in London, the lowest since the nation restructured its debt in March.

‘Good Investment’

Domestic and overseas investors offered to sell back to Greece as much as 27 billion euros of their holdings of the nation’s bonds, state-run NET TV reported. Greek banks submitted offers of about 10 billion euros, while foreign investors, including hedge funds, offered as much as 16 billion euros, Kathimerini newspaper said.

Greylock Capital Management LLC is tendering only part of its holdings in Greek sovereign debt, retaining about 60 percent, because “it’s going to be a very good investment,” Hans Humes, president of the New York-based hedge fund, said today in a radio interview on Bloomberg’s “The First Word” with Michael McKee. “The yield is extremely high and exceeds anything else in Europe.”

Greece is using a 10 billion-euro loan from Europe’s bailout fund to repurchase debt it issued earlier this year in the biggest sovereign restructuring in history. Bailout funds have been frozen since June after two elections and amid a deepening recession.

Greek Banks

The buyback was part of a package of measures approved by euro-area finance ministers on Nov. 27 to lower the nation’s debt to 124 percent of gross domestic product by 2020 from a projected 190 percent in 2014.

Greece’s four biggest banks said they participated in the buyback. The lenders are set to offer their entire holdings of the nation’s government bonds to bridge any shortfall from the target amount, both NET and Kathimerini reported.

The country’s banks held about 15 billion euros of the securities, while its pension funds had about 8 billion euros, according to a Nov. 27 draft report from the European Commission, European Central Bank and IMF.

The buyback program will be successful and ensure payment of the next loan tranche from international creditors, Greek Finance Minister Yannis Stournaras said in an interview published in Athens-based Ta Nea newspaper. The program must succeed, Finland’s Finance Minister Jutta Urpilainen said in another interview, published yesterday in newspaper Real News.

Higher Price

The buyback is focused on the 62 billion euros of bonds issued when Greece restructured its privately held debt in March. The prospects for a successful completion improved after the government increased the offer price above the closing level of Nov. 23, which euro-area finance ministers had said would be the maximum.

The buyback is a success based on the reports and “will allow Greece to borrow 10 billion euros from the European Stability Mechanism to retire outstanding debt with a face value of 30 billion euros, reducing its net debt by 20 billion euros,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note to investors.

The prices offered for Greek bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the Greek debt agency on Dec. 3. That compares with the average of 28.1 percent of face value on Nov. 23, according to a note from Royal Bank of Scotland Group Plc.

The IMF set the 2020 debt-reduction target as a condition for continuing to fund a third of Greece’s bailout program. The fund will examine the results of the buyback before deciding whether to approve the disbursement of additional aid, Managing Director Christine Lagarde said after a euro-area finance ministers’ meeting on Nov. 27.

Euro-area finance ministers plan to make a formal decision on Greece’s 34.4 billion-euro disbursement on Dec. 13. Deutsche Bank AG and Morgan Stanley were appointed to manage the buyback, according to the Greek debt agency.

To contact the reporter on this story: Paul Tugwell in Athens at ptugwell1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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