While the buyback had been expected, the prices offered by the government were above what the market had forecast, with a minimum price of 30 euro cents and a maximum of 40 cents, for a discount of 60 percent to 70 percent.
Analysts said they expected that the average price would ultimately be 32 to 34 euro cents, a premium of about 4 cents above where the bonds traded at the end of last week.
Pierre Moscovici, the French finance minister, played down concerns that the Greek debt buyback might not go as planned.
“I have no particular anxiety about this,” Mr. Moscovici said Monday at the European Parliament ahead of the meeting in Brussels of euro zone finance ministers to discuss Greece. “It just has to be very quick.”
A successful buyback is critical for Greece. The International Monetary Fund has said that it will lend more money to Greece only if it is reasonably able to show that it is on target to achieve a ratio of debt to annual gross domestic product of less than 110 percent by 2022.
Greece will have at its disposal 10 billion euros, or $13 billion, in borrowed money from Europe. Investors who agree to trade in their Greek bonds will receive six-month treasury bills issued by Europe’s rescue vehicle, the European Financial Stability Facility. The offer will close Friday.
If successful, the exchange will retire about half of Greece’s 62 billion euros in debt owed to the private sector. The country still owes about 200 billion euros to European governments and the I.M.F.
Analysts said that Greek, Cypriot and other government-controlled European banks, which have as much as 20 billion euros worth of bonds, were expected to agree to the deal at a price in the low 30s. That would mean that to complete the transaction, hedge-fund holdings of 8 billion to 10 billion euros in bonds would have to be tendered at a price below 35 cents. Any higher price would mean that Greece would have to ask its European creditors for extra money — an unlikely outcome at this stage.
Even though Greece is so close to bankruptcy, its bonds have become one of the hot investments in Europe. Large hedge funds, like Third Point and Brevan Howard, have accumulated significant stakes, starting this summer when the bonds were trading in the low teens. Shorter-term traders have been snapping up bonds at around 29 cents to make a quick profit by participating in the buyback.
In a research note published Monday, analysts at Nomura in London said it was “reasonable and likely” that enough hedge funds — especially those that might be more risk-averse and or have a shorter perspective — would agree to the deal at a price below 35 cents.
But there are also foreign investors looking to the longer term who may decide to hold onto most of their holdings in the hope that the bonds rally even more after a successful buyback.
“I think the bonds could go to as high as 40 cents in a nonexit scenario,” said Gabriel Sterne, an analyst at Exotix in London, referring to the consensus view that Greece will not leave the euro zone anytime soon.
Bondholders were encouraged by comments from Chancellor Angela Merkel of Germany, reported in the German news media over the weekend, that raised the possibility that European governments might offer Greece debt relief in the future. A number of bondholders expect Greek bond yields to trade more in line with those of Portugal in the coming years, but without the prospect of a future buyback to push up the prices of Greek government bonds, the risk to such an approach is substantial.
Jean-Claude Juncker, the president of the group of finance ministers whose countries use the euro, told a news conference late Monday in Brussels that ministers would meet again on the morning of Dec. 13 to make a final decision on aid disbursement to Greece.
Mr. Juncker said he was confident that Greece would receive its money on that date, but he declined to comment on the prospects for success of the buyback program because it was a sensitive matter for the financial markets.
Mr. Juncker has been the president of the group of ministers since 2005, and the post gives him significant power over what is discussed at the group’s meetings.
Mr. Juncker reiterated at the news conference that he would step down at the end of this year or at the beginning of next year. But he declined to signal his preference for any particular successor.
“I don’t have to endorse anyone,” Mr. Juncker said. “I was asking my colleagues to provide for my succession,” he said, referring to discussions held with ministers earlier in the evening.
Separately, Spain, which is also seeking to overcome crippling debt problems, began the process Monday of formally requesting 39.5 billion euros in emergency aid to recapitalize its banks. It also announced that a tax amnesty had yielded only 1.2 billion euros, less than half what the government had expected.
The request for emergency aid was being sent to authorities managing the euro zone bailout funds, according to Spanish officials, who added that no further approval would be needed from ministers meeting in Brussels.
The request follows the European Commission’s approval last week of a plan to make the granting of the aid conditional on thousands of layoffs and office closings at four Spanish banks: Bankia, Catalunya Banc, NCG Banco and Banco de Valencia.
James Kanter contributed reporting from Brussels.
Article source: http://www.nytimes.com/2012/12/04/business/global/greece-announces-terms-of-13-billion-bond-buyback-to-slash-debt.html?partner=rss&emc=rss
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