Greece ready to seal deal on bond swaps with private creditors

Greece closed a bond swap offer to private creditors last night after clearing the minimum threshold of acceptance to push the deal through, moving closer to unlocking funds it needs to avoid a dangerous debt default.

Government officials said before the final deadline for declaring interest passed at 2000 GMT that more than 75% of eligible bonds had already been committed.

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74% on the value of their investments in a deal that will cut more than €100bn from Greece’s crippling public debt.

Preliminary results from the offer are expected to be announced today before a conference call with euro zone finance ministers in the afternoon.

One of the chief negotiators for the bondholders, Charles Dallara, forecast a “very high” final take-up, though he was unsure if it would hit the 90% Greece is aiming for.

Athens had said that it would abandon the deal if it did not receive at least 75% participation in the offer and it required two-thirds take-up to deploy a legal device to force recalcitrant creditors to accept the terms.

The private sector involvement (PSI) deal is a key element in a broader international bailout aimed at averting a chaotic default by Greece and a potentially disastrous banking crisis across the euro zone.

The EU and IMF have made a successful bond swap a pre-condition for final approval of the €130bn ($170bn) bailout agreed last month.

“If all goes well, tomorrow we will be able to announce that a debt burden of €105bn has been lifted from the Greek people,” Venizelos told parliament earlier in the day.

“For the first time we are cutting debt instead of adding to it.”

Despite the optimism, the deal will not solve Greece’s deep-seated problems and at best it may buy time for a country facing its biggest economic crisis since World War Two and staggering under debt equal to 160% of its gross domestic product.

However financial markets rose strongly as the threat of an immediate and uncontrolled default receded.

Bank stocks rose sharply and the risk premium on Italian and Spanish government bonds fell as investors hoped a Greek deal would curb the likelihood of any contagion spreading to other weaker eurozone economies.

Eurozone ministers could decide whether to clear the overall bailout package in a conference call this afternoon although they may leave the final decision until a face-to-face meeting on Monday.

Greece must have the funds in place by March 20 when some €14.5bn of bonds are due, which it cannot hope to repay alone.

With over 75% take-up secured, well above the required two thirds threshold, Athens should be able to apply collective action clauses (CAC) imposing the deal on all holders of €177bn in bonds regulated by Greek law.

Reuters