November 29, 2012 / 2:03 PM / in 7 years

Greek bond buyback likely to feature varied prices: source

ATHENS (Reuters) - Greece has yet to decide what price to offer bondholders under a debt buyback plan that is central to a bailout deal with international lenders, but the price is likely to vary depending on the bond, a Greek finance official said on Thursday.

Greek Prime Minister Antonis Samaras arrives at the presidential palace for a meeting with Greek President Karolos Papoulias in Athens November 29, 2012. REUTERS/John Kolesidis

Questions have arisen over whether Athens will attract enough interest from bondholders, who have the choice of whether or not to participate in a deal that is needed to ensure Greek debt is deemed sustainable in the coming decade.

The deal, clinched at the third attempt after weeks of wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country stays afloat. The terms of the buyback will determine its success.

“It makes sense for it to happen in that way,” the senior official told Reuters when asked if the 20 eligible Greek bonds would be offered at different prices rather than at a uniform price.

Still, the official said that the government had yet to finalize the terms of the buyback, which are expected to be announced next week. Under the plan, Greece aims to cut its overall indebtedness by buying back bonds for less than it would have to pay if its creditors held them to maturity.

Prices of Greek bonds eligible under the buyback ranged from 25.15 euro cents to 34.41 cents at the close of trading on November 23, according to Reuters data.

Greece’s lenders agreed this week the bonds would not be offered at a price higher than the closing price on that date. The bonds have a nominal value of 63 billion euros.

Athens is expected to use 10 billion euros from its rescue package to buy back around 30 billion euros worth of debt, cutting its outstanding obligations by around 20 billion euros.

The official played down any suggestion that Athens could use unexpectedly high demand in the buyback to spend even more than the 10 billion euros of bailout money to cut debt further, saying: “This is a luxury we do not have.”

Athens must complete the bond buybacks by December 13 to receive more than 30 billion euros in bailout payments that the euro zone and the International Monetary Fund have withheld.

If Greece manages to buy back 30 billion euros of bonds, it would cut its debt level by 11 percentage points of gross domestic product by 2020.

That is about half the debt reduction Greece is supposed to achieve by that date under the accord struck earlier this week, with the rest coming from a package of debt relief measures and privatization revenues.

Deutsche Bank DKBGn.DE will be the lead manager of the bond buyback deal, with Morgan Stanley (MS.N) as deal manager, a senior official previously told Reuters.


Athens has said it is vital that the bond buyback scheme is successful, but skepticism has lingered that it will fail to draw enough interest from Greek banks and pensions funds who stand to lose from the deal.

Greek banks - whose shares fell 17 percent in the two days following Tuesday’s announcement of a debt buyback - are estimated to hold nearly 17 billion euros of Greek bonds, while Greek pension funds hold roughly 8 billion euros.

One Greek banker said all the nation’s banks were likely to take part in the buyback, especially since they themselves are awaiting recapitalization funds from Greece’s next aid tranche.

“I expect that all Greek banks will participate,” the banker said. “The buyback plan failing would sink the prices of the (Greek) bonds they hold.”

However, the head of the country’s biggest pension fund IKA-ETAM, which holds Greek bonds worth 800 million euros, on Thursday told Reuters that the fund had not yet decided whether it would participate in the bond buyback plan.

A repurchase price at about 35 cents on the euro is seen as a golden investment opportunity for hedge funds which have bought Greek bonds at rock-bottom prices.

A Greek finance ministry official and independent private analysts have said that hedge funds might hold as much as 25 billion euros of Greek bonds bought at very low prices.

Adding to the pressure on Athens, Moody’s said the Greek deal struck this week offered relief to the liquidity-starved economy but warned that the country’s debt burden remained unsustainable and that the buyback plan could be unsuccessful.

“It is uncertain whether there will be sufficient participation in the buyback process to contribute to a meaningful debt reduction,” the ratings agency said in a report.

Additional reporting by Emelia Sithole-Matarise in London and Renee Maltezou in Athens, Writing by Deepa Babington, editing by Swaha Pattanaik and Peter Millership

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