BLBG:Greek Debt Swap Clears 95% Level as Euro Chiefs Ready for Call
Investors with 95.7 percent of Greece's privately held bonds will participate in the biggest sovereign debt restructuring in history after the government said it will trigger an option forcing them to take part.
Stocks rose while the euro dropped after the government said bondholders tendered 152 billion euros ($201 billion) of Greek-law bonds, or 85.8 percent, in response to the offer to swap their holdings. Twenty billion euros of foreign-law debt was also tendered, the Finance Ministry said in a statement. Greece extended its offer to holders of non-Greek law bonds to March 23, after which sweeteners will no longer be available.
“The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program,” Josef Ackermann, chairman of the Institute of International Finance who is also chief executive officer of Deutsche Bank AG (DBK), said in an e-mailed statement. “These are important steps towards resolving the Greek debt crisis, addressing the overall fiscal and sovereign debt problems in the euro area, and restoring financial stability.”
Attention now shifts to euro-region finance ministers who meet by teleconference at 2 p.m. Brussels time. They must decide whether the swap is successful enough to warrant proceeding with a 130 billion-euro second bailout package designed to prevent a collapse of the Greek economy. The International Swaps and Derivatives Association said its officials will meet at the same time to consider a “potential credit event” relating to Greece.
Collective Action Clauses
With Greece now in a fifth year of recession, Prime Minister Lucas Papademos’s government had said that it was ready to use so-called collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement fell short and it got approval from investors to change the bonds’ terms. The exchange is meant to help reduce Greece’s debt to 120.5 percent of gross domestic product by 2020.
“This is a dangerous precedent that has been set,” John Wraith, fixed-income strategist at Bank of America Merrill Lynch, said in an interview on Bloomberg Television’s “Countdown” with Linzie Janis and Owen Thomas. For Greece, “yes, it is probably necessary, but it is just another hurdle crossed rather than some sort of solution.”
European equity futures and commodities gained, while Asian stocks posted the biggest-two day rally since January. The euro dropped 0.3 percent to $1.3233 as of 9:47 a.m. in Athens.
‘Mild Negative’
“There was a small possibility that for whatever reason, the participation would be so high that the CACs may not need to get triggered,” Pawan Malik, managing director of Navigant Capital, said in a Bloomberg Television interview. “For the markets this may be a mild negative today.”
The writedown is a key element in European leaders’ efforts to turn the tide against the crisis that first emerged in Greece in late 2009, then forced Ireland and Portugal to follow Greece in requiring bailouts. The goal of the exchange is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent.
Germany and France, Europe’s two biggest economies that have steered the euro-area’s response to the crisis, welcomed the debt-swap take-up.
The “high level” of participation offers Greece a “historic chance,” the German Finance Ministry in Berlin said in an e-mailed statement. Greece’s announcement that 85.8 percent of private investors are taking part in the voluntary swap “is a big step on the road to stabilization and consolidation and toward debt sustainability,” it said.
‘Great Success’
The debt restructuring was a “great success” and “good news,” and “hits all the objectives we set ourselves,” French Finance Minister Francois Baroin said on RTL Radio.
Greece’s largest banks, most of the country’s pension funds and more than 30 European banks and insurers including BNP Paribas SA and Commerzbank AG (CBK), had said they would agree to the offer before it closed yesterday at 10 p.m. Athens time.
In the exchange, investors will receive new bonds with a face value of 31.5 percent of the old ones together with notes from the European Financial Stability Facility. The new debt is governed by English law and comes with warrants that will provide extra income in years when Greek economic growth exceeds thresholds. The net present value loss for investors is more than 70 percent.
Finance Minister Evangelos Venizelos, in a statement, expressed his “appreciation to all of our creditors who have supported our ambitious program” and “shared the sacrifices of the Greek people in this historic endeavor.” He is due to address Parliament in Athens at 11 a.m. local time.
“Despite all the justified happiness about this issue we have to note that Greece is only buying time,” Michael Kemmer, general manager of the BdB Association of German banks, said in an interview with Deutschlandfunk radio. “This is an important step -- the private sector showed solidarity. That’s good, but the work has only just begun.”
To contact the reporter on this story: Maria Petrakis at mpetrakis@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
