Global bondholders to decide on Greek swap offer

Global bondholders to decide on Greek swap offer

On Friday September 9, 2011, 4:26 am EDT

By George Georgiopoulos

ATHENS (Reuters) – Investors in Greek government debt worldwide will tell
regulators on Friday whether and how they will participate in a bond swap aimed
at giving Athens more time to emerge from a debt crisis, with officials
expecting a take-up of about 70 percent.

Athens gave banks and insurers
in 57 countries until September 9 to say whether they intend to take its debt
exchange offer, a key part of a second 109 billion euro bailout package it
clinched at a July 21 euro zone summit to avoid bankruptcy.
“September 9
is the cutoff date and it is very likely that we may have a bigger response rate
as bond holders rush on the last day,” a source close to the procedure said on
condition of anonymity.

Greece had threatened to cancel the deal unless
it got 90 percent participation, which would see 135 billion euros ($189
billion) of its outstanding bonds maturing by 2020 swapped or rolled over in a
global transaction it wants to conclude next month.

But the country is
not in a strong position to walk away from the scheme. It is already faced with
the threat of its EU partners blocking an 8-billion euro bailout aid tranche if
it does not improve its debt-cutting performance.

Greek authorities have
said they are pleased with the progress of the private-sector involvement (PSI)
program without disclosing details on take-up rates, which bankers say are
around 70 percent — a level they say would still be considered
successful.

“Even with a participation rate of 70 percent or better,
which is my current view, the PSI will proceed,” said an Athens-based banker
close to the procedures.

German investors share that view, a big German
bondholder told Reuters. A 75 percent takeup rate would be a success and enough
to convince the political side of the deal, 90 percent was unrealistic from the
beginning, he said.

The threat to walk away may merely be a tactic by
Athens to get most of bondholders on board, bankers said.

Greece is not
planning any announcement on Friday as bondholders’ non-binding responses must
be aggregated by their respective regulators which will then send data to
Athens, a process that may take time, the debt agency chief has said.

A
high participation rate would give Athens cash-flow relief and more time to get
its fiscal house in order amid rising worries that its commitment and ability to
implement economic reforms prescribed by its international lenders is
wavering.

If it goes through, the deal may offer some short-term relief
to riskier assets and may push Bunds lower, but the move is likely to be
short-lived given that Greece is missing its fiscal targets and EU/IMF aid is at
risk.

“In a way we are more concerned about Greece getting their money
than about this debt swap. There is a risk that Greece will soon run out of
money,” one trader said.

“The Greek situation is not getting any better
and the Italian situation is monitored very closely so I don’t see why we
shouldn’t see any (Bund) buyers on any pullback,” the trader
said.

POLITICAL IMPERATIVE

Pressured by their taxpayers, euro zone
governments insisted that the private sector shared the burden of averting a
financial collapse in Greece before agreeing to the new bailout.

A low
participation rate in Greece’s debt swap may mean reluctant euro zone partners
will have to cough up more cash for the overall package to work.

But a
take-up rate close to target will not require major plumbing to adjust the
rescue package, bankers said, adding that the shortfall could be covered by
reallocating funds.

A source close to the procedure expected strong
take-up in Europe, where the majority of Greek debt was sold for
years.

“There is more support in Europe, where they will likely go for
the full amount,” the source told Reuters.

On Wednesday, another source
close to the PSI talks said roadshows were taking place in Asia and America and
that it would take more time to conclude the deal.

Greek and European
lenders such as National Bank of Greece (Athens:NBGR.AT – News), France’s BNP
Paribas (Paris:BNPP.PA – News), Belgian group Dexia (Brussels:DEXI.BR – News)
and Germany’s Commerzbank (XETRA:CBKG.DE – News) are among the biggest holders
of Greek bonds.

Small Greek lender Proton Bank said late on Thursday it
would not take part in the bond swap, without spelling out why. It owns 691
million euros of securities that would have been eligible for the scheme, it
said in a statement.

Shares of Greek banks (^FTATBNK – News), the world’s
most exposed financial institutions to the country’s government bonds shed 1.5
percent in early trading in Athens, slightly underperforming the STOXX Europe
600 banking index (^SX7P – News).

The International Institute of Finance
(IIF), a global banking group leading the swap talks, expressed confidence
earlier in the week that the swap offer would get the necessary investor
support.

The trade group said last month that participation was at 60-70
percent.

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