Greek bond buyback looks like a success as banks sign up

Greece’s offer to buy back some of its bonds at a steep discount appears to have been successful, which could unlock vital aid and allow a wider €40 billion debt-relief package agreed with its international lenders to proceed.

Greece offered holders of its restructured bonds up to €10 billion worth of six-month bills issued by the European Financial Stability Facility in return for Greek bonds with a face value of about €30 billion.

Bankers in Athens were optimistic last night that it had gone smoothly, estimating that international investors, predominantly hedge funds, had offered to sell bonds worth more than €15 billion. No confirmation of the buyback’s success is expected until early next week.

“It seems we made it, the first indications are that there was good participation by hedge funds,” one banker said.

The country’s four largest banks contributed a large part of their €17 billion holdings of bonds, after the Greek finance minister said it was their “patriotic duty” to ensure the buyback’s success. Together with local pension funds and a remnant of European institutional investors and banks, this should bring the total tendered above the required €30 billion mark, said local bankers.

“It went pretty well, our estimate is that the target has been comfortably achieved,” another banker said, adding that the four Greek banks had contributed 60-80 per cent of their bonds. In addition to lowering Athens’s debt burden and thereby allowing a debt-relief plan to go forward, the buyback in the short term will unlock €34 billion of international funding this month from the EU and the International Monetary Fund, earmarked for recapitalising the banking sector and reviving the economy.

Most of the bonds repurchased by Greece were longer-dated. Some hedge funds were keen to hold on to the high-yielding bonds maturing in a decade or so, while Athens was keener to buy long-maturity bonds – their lower price allowing a larger debt reduction.

The deadline to offer bonds to one of the buyback’s two dealers expired last night, but final settlement is not expected until December 17th.

– (Copyright The Financial Times Limited 2012)