EU Commission Says Greek Bond Swap Requires Time for Investor Decisions
Feb. 15 (Bloomberg) -- Hans Humes, president of Greylock Capital Management, talks about the outlook for European Union finance ministers to approve s second aid program for Greece. Humes speaks Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)
Greek investors will need time to review settlement details and make decisions as a debt swap takes shape along with a second rescue package for the country, the European Union said.
Euro-area finance ministers need to agree on all elements of the bailout plan and the conditions Greece must meet to receive the bailout, Amadeu Altafaj, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters today in Brussels. When asked whether the debt swap would be technically able to proceed ahead of a broader deal, he responded that “decisions are first and foremost political.”
Even though a framework and many of the details have been agreed upon, the bond exchange has stalled because of broader clashes between the EU and Greek authorities. EU officials have said Greece needs to show more commitment to promised reforms in order to receive the 130 billion-euro ($170 billion) aid package that was broadly endorsed in October.
Finance ministers are discussing Greece on a conference call today, scheduled in place of a previously planned emergency meeting in Brussels. Institute of International Finance officials, who have been representing creditors in the negotiations and who had planned to be on the sidelines of the Brussels meeting, postponed their travels once the in-person meeting was canceled. The finance ministers have a regularly scheduled meeting in Brussels next week.
Altafaj said today that there is an “urgency of proceeding smoothly” with all elements of the rescue package, including private-sector involvement.
‘Heavy Operation’
“PSI of course is a heavy operation that requires time and a number of settlements and decisions by the private sector,” as well as by officials, Altafaj said. “The sooner the better, but we cannot of course move forward without having all the conditions in place.”
Greece is seeking to reduce its debt to 120 percent of gross domestic product by 2020 from 160 percent last year. A debt-swap agreement would slice 100 billion euros off more than 200 billion euros of privately held debt, provided investors follow through on pledges to participate voluntarily.
Private creditors have been prepared to accept an average coupon as low as 3.6 percent on new 30-year bonds in the exchange, which calls for investors to take a 50 percent cut in the face value of their existing bond holdings. The rescue blueprint includes a net present value loss of 70 percent or more for bondholders.
Drawn-Out Negotiations
Pressure has been mounting for the deal to be wrapped up soon because of a 14.5 billion-euro March 20 bond payment looming over Greece. As negotiations drag on, that deadline may no longer be enough to force a conclusion to the drawn-out negotiations, said Carsten Brzeski, a senior economist at ING Group in Brussels.
“We’ve seen before, if really push comes to shove, there are always little exit doors in Europe,” Brzeski said in a telephone interview. “These very tight and very strict deadlines might turn out to be more flexible than they might think.”
The IIF, which has represented investors in the swap negotiations, has maintained that the goal should be a voluntary agreement in line with the original October outline.
Widespread participation may be more difficult now, as banks have sold to hedge funds and other “more risk-prone” investors who may be more inclined to seek higher returns by holding out, said Nicolas Veron, a senior fellow at Bruegel, a Brussels-based economics research group. He said many investors expect participation will not be high enough to avoid a credit event, possibly triggered by collective-action clauses that force creditors to join in to the deal.
“The difficult question is how much leverage do the governments have on the investor base,” Veron said in a telephone interview. “My expectation would still be that having the deal is better than alternatives.”
To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net;
To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net
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