Craig Eisele on …..

March 8, 2012

Investors Hopefull As Greek Dedadline Looms

Filed under: Uncategorized — Mr. Craig @ 12:48 pm

Greece ‘closes in’ on debt swap as deadline looms

EU and Greek flags flying in Athens If Greece wants to secure vital new bailout funds it has to get agreement on a debt swap deal

Investors are increasingly hopeful that Greece will secure a vital debt swap deal, as a Greek official said that more than 75% of bondholders had now agreed to take part.

Greece needs at least 75% of its bondholders to agree to take a cut in the value of their holdings to be able to push through the plan.

It comes ahead of a deadline of 2000 GMT on Thursday.

Shares have risen on optimism that the deal will be supported.

Both the main German and French stock indexes ended the day’s trading up 2.5%, while the UK’s FTSE 100 added 1.2%.

“I’m optimistic that there’s going to be an agreement in the next few hours,” said Charles Dallara, the head of the bank group leading the debt swap talks.

Bailout requirement

Greece has said it wants 90% of bondholders, such as banks and pension funds, to agree to take a 53.5% cut in the 206bn euros ($272bn; £172bn) of Greek bonds they hold. But it only requires a 75% take up to be able to force through the deal.

Without the deal, Greece will not receive another bailout.

So far, Germany’s Munich Re, French banks Societe Generale and BNP Paribas and some pension funds have said they will sign up.

 

“The pace of responses to the bond offer is good, the percentage of bondholders tendering voluntarily is very high,” a Greek government official earlier told the Reuters news agency.

But some small pension funds have said they will not – and others are waiting to see what hedge funds will do.

One bondholder told the BBC that he had “no incentive” to accept the deal and would not do so.

“I’m not in the business for altruistic reasons,” said Patrick Armstrong, managing partner at Armstrong Investment Managers. “Capital markets function best when people are out to deliver return on capital investment.”

An announcement on the take-up of the swap will appear on the Greek government’s bonds website at 06:00 GMT on Friday.

‘Full participation’

The European Union and International Monetary Fund have said – if the debt swap does not go through – that Greece will not get its latest bailout of 130bn euros.

Economic and Monetary Affairs Commissioner Olli Rehn said there would be no better offer, and the deal was vital for eurozone financial stability.

Mr Rehn said: “It is important that all investors recognise that Europe has committed the maximum funds available to this voluntary debt exchange and that full participation is necessary for the Greek programme to move forward.”

The Greek Finance Ministry has made it clear that the alternative to the debt swap is a potential default.

“The republic’s representative noted that if [private sector involvement] is not successfully completed, the official sector will not finance Greece’s economic programme and Greece will need to restructure its debt,” it said on Tuesday.

Their 107bn-euro write-off – the “haircut” – together with a huge package of public sector cuts aim to reduce Greek debt from 160% of GDP to 120.5% by 2020.

Athens was first bailed out in 2010 with 109bn euros from the EU and IMF.

As the sovereign debt woes in the eurozone continue to focus primarily on Greece, the head of the World Trade Organisation, Pascal Lamy, told the BBC that eurozone nations would have to align their economies more closely.

He said: “What the Europeans have to do is align the level of integration, of solidarity, which they have currency wise, monetary wise, with something which is economically much more convergent.

“I think that is the direction they are taking.”

 

Analysis

image of Mark Lowen Mark Lowen BBC News, Athens

The number of creditors signing up for the deal is growing, but it’s likely the Greek government will still need to force this through with the ‘Collective Action Clause’ mechanism.

That would make it less than voluntary and more like a default.

Credit-default swaps (CDS) – insurance on the original bonds – would then probably be triggered.

They played a role in the 2008 financial crisis and brought down the US insurer AIG; they still strike fear into the hearts of eurozone leaders even if there’s limited exposure to CDS this time around.

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