Greece Makes Buyback Offer as Merkel Floats Writeoffs

Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid.

Greek bonds rallied after the so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. PDMA offered an average maximum purchase price for the bonds maturing from 2023 to 2042 of 34.1 percent, based on information in the statement. The offer runs until 5 p.m. London time on Dec. 7.

Success of the buyback is crucial to releasing aid that’s been frozen since June. The offer was part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014. The deal may enable Greece to retire about 30 billion euros of debt, Citigroup strategist Valentin Marinov wrote in a comment.

The average price “is higher than previously published or announced,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin. Anything that reduces the overall debt burden is good.”

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Germany's Chancellor Angela Merkel. Close

Germany's Chancellor Angela Merkel.

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Photographer: Jock Fistick/Bloomberg

Germany's Chancellor Angela Merkel.

The bid to ease Greece’s debt curden underscores a move away from austerity-first measures European leaders have embraced since the financial crisis began in 2009. German Chancellor Angela Merkel yesterday opened the possibility that Germany may ultimately accept a write-off of Greek debt, previously a taboo in the biggest contributor to euro bailouts.

Bonds Rise

Greek bonds rose for a third day, pushing the 10-year yield below 15 percent for the first time since the nation’s debt was restructured in March. The yield on the 2 percent securities maturing in February 2023 fell 151 basis points, or 1.51 percentage points, to 14.63 percent at 9:45 a.m. London time, leaving the price at 39.31 percent of face value.

Investors who join the buyback will receive payment in six- month bills from the European Financial Stability Facility, the Greek debt agency said.

The International Monetary Fund set the 2020 debt-cut target as a condition for continuing to fund a third of Greece’s bailout program. IMF Managing Director Christine Lagarde said after the euro-area finance ministers’ meeting that the fund will examine the results of the buyback before deciding whether to approve disbursement of additional aid.

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A European Union (EU) flag, left and a Greek national flag, right, fly outside the headquarters of the National Bank of Greece SA in Athens, Greece. Close

A European Union (EU) flag, left and a Greek national flag, right, fly outside the... Read More

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Photographer: Angelos Tzortzinis/Bloomberg

A European Union (EU) flag, left and a Greek national flag, right, fly outside the headquarters of the National Bank of Greece SA in Athens, Greece.

The buyback accounts for 11 percentage points, or more than half of the 20 percentage points of the planned drop.

Deepening Recession

While Greece has gotten pledges for 240 billion euros of aid, the funds have been blocked since June as the government tries to get its bailout program back on track after it was disrupted by two elections and a deepening recession.

The buyback will target 62 billion euros of new bonds issued after the debt swap, according to a Nov. 27 draft of a report by the so-called troika comprising the European Commission, the European Central Bank and the IMF. Greek banks hold about 15 billion euros of the new bonds, while the country’s pension funds hold 8 billion euros.

Finance ministers plan to make a formal decision on Greece’s 34.4 billion-euro disbursement by Dec. 13. Deutsche Bank AG and Morgan Stanley International were appointed to manage the buyback, according to the PDMA.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net;

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net;

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