LONDON — Greece, on the verge of completing a crucial plan to reduce its debt burden, 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 offered close to €26 billion in bonds, the government fell short of the goal of €30 billion, or $39 billion, that its international creditors have set as a minimum for the deal to be called successful.

The new deadline is noon in London on Tuesday.

Having borrowed €10 billion from one of the European bailout funds to buy back the debt, the goal is for net debt relief of €20 billion — an amount the International Monetary Fund has said Greece must retire if the institution is to keep lending to the country.

Bankers close to the deal 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 they still expect the buyback to be completed. But with Greek banks reluctant to sell all of their restructured bonds back to the government, the buyback’s success remains very much dependent on foreign investors selling the majority of their holdings.

While Greek banks are believed to own €17 billion worth of bonds, they have not tendered the entire amount. Unlike foreign investors, many of whom bought the securities at knockdown prices, the Greek banks will not be reaping big profits from selling the bonds at around 33 cents per euro. Bankers estimate that foreigners, 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 Monday, made it clear to reluctant investors that they may 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,” Mr. Papadopoulos said in the statement. “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 offering at a lower price, with the government invoking collective action clauses to force holdout investors to accept the revised 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. as the bonds are government by English law, would surely be challenged in British courts by foreign investors. And given the recent successes that hedge funds have had in suing Argentina and Ireland with regard to past bond restructurings, Greece — and Europe — will 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