Greece Plans to Retire $41.5 Billion of Debt in Buyback

Greece Plans to Retire 31.9 Billion Euros of Bonds With Buyback
Greece is seeking to cut a debt load that threatened to derail aid from the European Union and International Monetary Fund. Photographer: Chris Ratcliffe/Bloomberg

Greece plans to repurchase government bonds with a face value of 31.9 billion euros ($41.5 billion) from private investors including its own banks to free up aid for the cash-strapped country.

Greece will pay an average weighted price of 33.8 percent of face value for government bonds maturing from 2023 to 2042 after agreeing to pay the maximum price from the range it had indicated for each bond, the Athens-based Public Debt Management Agency said in a statement on its website today. The buyback offer began Dec. 3 and ran until noon London time yesterday.

“The buyback was a success,” Bank of Greece Governor George Provopoulos told the Parliament’s finance committee after the results were announced. The outcome means one more condition for bailout funds to be released has been met, he said.

To repurchase all the debt tendered, Greece will need approval from European authorities to spend 11.29 billion euros, more than the 10 billion-euro loan from Europe’s bailout fund earmarked for the buyback. Greece is seeking to cut a debt load that threatened to derail aid from the European Union and International Monetary Fund. The buyback was part of a package of measures approved by euro-area finance ministers to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014.

“The debt buy back has been a success, however it is still subject to the financing condition,” said Hakan Wohlin, global head of debt origination, capital markets and treasury solutions at Deutsche Bank AG, which managed the buyback with Morgan Stanley.

Minor Issues

The buyback underscores a move away from the austerity-first measures European leaders have embraced since the financial crisis began in 2009. Euro-area finance ministers discussed the transaction on a conference call yesterday, concluding that no insurmountable obstacles remain to the next disbursement of aid to Greece, a European official said. The ministers noted that while some minor issues exist, they should be resolved at a meeting in Brussels tomorrow, the official said on condition of anonymity.

The buyback was aimed at the 62 billion euros of new bonds issued when Greece restructured its privately held debt in March. Participants in the transaction included Greek banks, which held about 15 billion euros of the bonds.

Investors who joined the buyback will receive payment in European Financial Stability Facility notes on Dec. 18, the Greek debt agency said.

The IMF 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 on Nov. 27 that the fund will examine the results of the buyback before deciding whether to approve disbursement of additional aid.

Bonds Rise

The buyback as originally envisaged accounts for 11 percentage points, or more than half of the 20 percentage points of the planned drop in the debt-to-GDP ratio.

Greece’s 10-year bonds advanced for a fifth day, pushing the yield down 3 basis points to 13.18 percent. Earlier the rate fell to 12.46 percent, the lowest since the country’s debt was restructured in March, amid optimism European officials are set to disburse the next tranche of aid to the nation.

Greece’s success in securing its buyback target qualifies it for the delayed payment of 49.1 billion euros of bailout funds, the German Deputy Finance Minister Steffen Kampeter said in a letter to his country’s parliament.

Greece set prices for the repurchase of its government debt ranging from 32.2 percent of face amount for securities due in 2037 to 2042, to 40.1 percent for bonds maturing in 2023. It accepted the fewest offers for the 2023 securities, agreeing to buy back 1.14 billion euros, the debt agency said. That compares with as much as 1.78 billion euros for 2039 bonds.

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

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