Greek debt swap wins support from large group of private creditors

Tue, Mar 6, 2012, 00:00

A LARGE group of private creditors agreed yesterday to take part in the multi-billion euro Greek debt swap in a step forward for Athens as the country struggles to avert a sovereign default.

However, people in Athens who are close to the debt-swap process said they still expected that collective action clauses (CACs) would have to be activated to ensure the participation rate was high enough for the €206 billion swap to succeed, despite a claim by Greek finance minister Evangelos Venizelos that it would reach 90 per cent.

Mr Venizelos yesterday urged private bondholders to come on board.

“Our target is near universal participation...No one should imagine that there will be a second offer that will include these elements.”

One person with knowledge of the process said that participation was unlikely to exceed 75-80 per cent, but that if CACs were activated it would be possible to raise the level to 90-95 per cent and complete the swap by next Monday as planned. “It is a near certainty that CACs will be activated after the offer closes on Thursday night.”

Twelve banks, insurers, asset managers and hedge funds in the steering committee of bank lobby group the Institute of International Finance (IIF) said they would take part in the bond exchange.

Members of the IIF steering committee include BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management.

The IIF said this represented a “substantial” amount of the €206 billion in Greek bonds held by the private sector that banks managing the swap are trying to involve.

Analysts estimate that institutions represented by the IIF make up about half of the private sector bonds.

Although this is a step forward, most analysts expected these groups would take part in the exchange, which involves swapping current bonds for longer-maturing debt with lower coupons. For many analysts the success of the debt swaps centres on whether other creditors can be encouraged to take part.

Mr Venizelos faces opposition from managers and board members of several Greek state pension funds, which hold a total of about €30 billion of government bonds. They claim the Greek central bank invested their cash reserves in bonds without consulting them.

In a show of defiance the civil service union Adedy, with board members on several funds, said it would vote against participating in the swap, although such a decision would be overruled by the finance ministry.

Greek banks holding €18 billion of bonds issued by loss-making state corporations that carry state guarantees have also been putting up resistance.

They claim that they should be excluded from the 75 per cent losses that investors will take on their sovereign bondholdings. – Copyright The Financial Times Limited 2012