LONDON — Greece, on the verge of completing a crucial plan to reduce its debt burden, on Monday extended for another two days the deadline for foreign investors and Greek banks to sell their deeply discounted bonds back to the government.
Announced a week ago, the deadline for taking part in the buyback was to have been last Friday. But even though Greek banks and hedge funds have offered close to €26 billion, or $33.6 billion, in bonds, that amount falls short of the goal of €30 billion that the government’s troika of international creditors have set as a minimum for the program to be considered successful.
The new deadline is noon in London on Tuesday.
Having borrowed €10 billion from a European bailout fund to buy back the debt, the goal is for net relief of €20 billion — an amount the International Monetary Fund has said Greece must retire if the institution is to continue lending to the country.
The I.M.F., along with the European Commission and the European Central Bank, make up the troika that has bailed out Greece twice.
Bankers close to the bond buyback program say that hedge funds, which for weeks have been coy about whether they might agree to sell at what would be an average price of around 33 cents per euro, have participated in larger-than-expected numbers. And the bankers say they still expect the buyback to be completed. But with Greek banks reluctant to sell all of their bonds back to the government, the buyback’s success remains dependent on foreign investors selling the majority of their holdings.
Greek banks are believed to own €17 billion worth of bonds. Unlike foreign investors, many of whom bought the securities at knockdown prices, the Greek banks will not reap big profits if they sold their bonds — which were restructured earlier this year — at around 33 cents per euro. Bankers estimate that foreign investors, which own about €24 billion worth of bonds, have offered between €15 billion and €17 billion in debt so far.
At a time when blue-chip collateral is hard to find in Europe, the restructured bonds are seen by the Greek banks as a premium asset that can be used to borrowing much-needed funds from the European Central Bank.
“If the foreigners do not come in we are toast,” said one banker who was involved in the transaction but requested anonymity because he was not authorized to speak publicly.
The head of the Greek debt management agency, Stelios Papadopoulos, in a statement on Monday, made it clear to reluctant investors that they might never get another chance to sell their debt at prices as high as the government is offering. “Investors should bear in mind that even if Greece accepts all bonds tendered in the invitation, it will continue to engage with its official sector creditors in considering further steps to put its debt on a sustainable path,” he said. “Future measures may not involve an opportunity to exit investments in designated securities at the levels offered for this buyback.”
Such measures might include a second buyback offer at a lower price, with the government invoking collective action clauses to force holdout investors to accept the terms. The government could also try to use provisions in the bond contracts that might allow Greece to keep paying its European creditors while forcing private-sector bondholders to take losses.
Such steps are aggressive, though, and would surely be challenged in courts by foreign investors. Given the recent successes that hedge funds have had in suing Argentina and Ireland with regard to past bond restructurings, Greece — and Europe — would think long and hard before taking this type of action.
Article source: http://www.nytimes.com/2012/12/11/business/global/greece-extends-deadline-for-debt-buyback.html?partner=rss&emc=rss
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