Greece Will Buy Back 10B Euros in Bonds

Greece is planning to spend 10 billion euros ($13 billion) to buy back bonds issued earlier this year in an attempt to cut its debt and trigger the release of 43.4 billion euros ($56.7 billion) from international lenders.
The bond buyback scheme was a provision of the release of the next installment of loans that are the first in a second bailout of 130 billion euros, ($173 billion) needed to keep the economy from collapsing.
Finance Minister Yiannis Stournaras said participation by bondholders is voluntary, but suggested the country has a backup plan in case there is not enough participation. Greece wants to buy the bonds back at 34.1 percent of their value, imposing more losses on investors. He will be in Brussels on Dec. 3 to review the plan with Eurozone finance ministers.
The buyback will take place in what is called a modified Dutch auction, the Athens-based Public Debt Management Agency said. The offer runs to 5 p.m. London time on Dec. 7.
Success of the buyback is essential to get the loans that have been on hold since before the June elections and is part of a package of measures approved by Eurozone finance ministers that aims to cut the nation’s debt to 124 percent of Gross Domestic Product (GDP) in 2020 from the 190 percent it was projected to reach in 2014 without the measures.
The IMF set meeting the target as a requirement before it agrees to releasing the aid. The buyback accounts for 11 percent of the planned 20 percent drop in debt ratio. The buyback will target 62 billion euros ($80.8 billion) of new bonds issued after the debt swap, according to a Nov. 27 draft of a report by the so-called Troika of the IMF, European Union and European Central Bank.
Greek banks hold 15 billion euros ($19.5 billion) of the new bonds and are reeling while waiting for a recapitalization of 50 billion euros ($65.17 billion.) They suffered huge losses under an earlier scheme when a former government wrote down 74 percent of Greek bond holdings in a first desperate bid to reduce debt.
Greece’s struggling pension funds, also hard hit by the first plan, hold 8 billion euros ($10.4 billion) but Prime Minister Antonis Samaras said they will be exempt to protect them. Eurozone finance ministers are set on Dec. 13 to make a decision on a 34.4 billion euro ($44.8 billion) loan installment, the first in the pending next round.
(Sources: Kathimerini, Bloomberg)