Greece offers to buy back debt from investors
LONDON — In a bold bid to reduce its debt burden, Greece offered Monday to spend as much as 10 billion euros to buy back 30 billion euros of its bonds from investors and banks.
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,” Moscovici said Monday at the European Parliament ahead of the meeting in Brussels of eurozone 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 would 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 IMF.
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 in order 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 a shorter perspective — would agree to the deal at a price below 35 cents.