Greece says voluntary debt buy back must succeed

ATHENS Wed Nov 28, 2012 11:07am EST

1 of 8. Greece's Finance minister Yannis Stournaras arrives for a news conference in Athens November 28, 2012.

Credit: Reuters/Yorgos Karahalis

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ATHENS (Reuters) - Greece's debt buyback plan, a key element of the cash-strapped country's bailout deal, will be voluntary but must succeed, Finance Minister Yannis Stournaras said on Wednesday.

In his first major news conference since a deal earlier this week to shave about 40 billion euros off the country's debt pile, Stournaras said the offer would be attractive to bond holders.

But he declined to give details.

"The buyback must succeed. It's our patriotic duty to succeed, it is important for the country's credibility," he said.

Greece must conduct the deal by December 13, before it receives more than 30 billion euros in withheld bailout payments from the euro zone and the International Monetary Fund (IMF).

According to ministry officials, Greece might spend around 10 billion euros from the euro zone's rescue fund EFSF, which would allow it to buy around 30 billion euros worth of debt, cutting its outstanding obligations by around 20 billion euros.

Deutsche Bank DKBGn.DE will be the lead manager of the operation, working together with Morgan Stanley (MS.N) as deal manager, a senior finance ministry official told Reuters earlier on Wednesday.

But private sector analysts have raised questions over whether it would attract enough interest from bondholders to deliver the promised savings and how it would be funded.

Greek bank stocks have plunged by more than 15 percent since the plan was announced on Tuesday, on concerns they will be forced into a raw deal that would hurt their capital.

Greek banks and pension funds hold nearly 30 billion euros of Greek debt, about half of the outstanding Greek bonds in the hands of private investors.

Most of their capital has been already wiped out by an earlier debt cut in March and they must be recapitalized with more than 40 billion euros in bailout funds. If they fail to attract private investors to provide about a tenth of the capital they need, they will be nationalized.

Stournaras sought to address these concerns, saying the buyback will be voluntary and a bargain for investors at the current, high prices at which Greek bonds are trading.

The EU and the IMF have said that they would not disburse the aid promised to Greece before reviewing the buy-back's results. But they have not given any targets for it.

Greece's Public Debt Management Agency expects to publish the invitation for the plan early next week, maybe as early as Monday.

Officials have said that the repurchase has a target cost of around 35 cents on the euro. A repurchase at that price is seen as a golden investment opportunity for hedge funds which have bought Greek bonds at rock-bottom prices.

A Greek finance ministry official said that hedge funds might hold as much as 25 billion euro of Greek bonds bought at very low prices.

Stournaras made clear Greece has a tough road ahead to implement its pledges to lenders and secure funds.

"This is not the time to celebrate. This is where the hard part begins," he said. "Ahead of us lie months of hard work to implement what we have pledged."

(Writing by Harry Papachristou and Dina Kyriakidou. Editing by Jeremy Gaunt.)

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