* Pariah plans return two years after restructuring
* Greece hoping to replicate Ireland, Portugal rehab
* Debt agency also studying US dollar debt sale
By John Geddie
LONDON, March 20 (IFR) - Greece's return to the
international debt markets could be just around the corner,
despite the country inflicting painful haircuts on investors
just two years ago.
Greece would be the last bailed-out peripheral country to
stage a bond market comeback following Ireland and Portugal in
2013, and follow a thumbs-up from the Troika and an impressive
senior issue from one of its largest banks this week
Many of its primary dealers say the earlier the return the
better, as demand from yield-starved investors ramps up, and a
deal could even come before European elections in May.
"From a demand perspective, Greece could access the market
today," said Philip Brown, head of public sector origination at
Citigroup, a bank that makes markets in Greek government bonds.
"There is a process of normalization taking place in
Greece's investor base. Six months ago the market was dominated
by emerging and distressed funds in London and the US, but now
we are seeing an increasingly diversified range of participants
including some European real money coming back to the market."
Greek yields have dropped to their lowest levels since the
country's 237bn bailout started back in 2010.
This rally was given a further leg up after international
lenders approved a deal to unlock the latest tranche of aid on
Tuesday, leading senior members of Greece's finance ministry to
unveil plans to raise up to 2bn in five-year bonds in the first
half this year.
Such an issue would fill a gap in Greece's curve between its
short-dated T-Bills and its restructured bonds, the shortest of
which matures in 2023, but more than that it would be an
important milestone on the country's path to rehabilitation.
This rehabilitation would come despite Greece being rated
six notches below investment grade by S&P and Fitch, and seven
notches below by Moody's in the dubious CCC category.
This contrasts with Ireland, which only had one junk rating
when it returned to markets, and Portugal, which was between one
and three notches below investment grade by the three main
However, Mark Dowding, a senior portfolio manager at
BlueBay, one of Europe's largest bond funds, believes that the
rating should not be an obstacle to issuance.
"In many respects, those funds who have had appetite to
invest in Portugal recently are also likely to look at any Greek
deal," said Dowding.
"I would assume any planned issuance would be targeted at
both real money and distressed investors."
Traders in Greek debt agree that the stars are aligning for
the sovereign's return.
Not only are investors switching out of other peripheral
debt to buy Greece - its 10-year bonds currently offer a 240bp
pick up to equivalent Portuguese bonds, and 350bp to Spain and
Italy - but many emerging markets investors, rattled by recent
political events in Turkey and Ukraine, are now being enticed by
the yields offered by the eurozone's pariah state.
Equivalent Russian and Turkish US dollar benchmarks - two of
the largest components of Global emerging market indices - are
currently trading through Greece by 140bp and 120bp,
"In light of little emerging market sovereign issuance so
far this year, I wouldn't be surprised if emerging market
investors would add Greece to their portfolios," said Zsolt
Papp, director, Emerging Market fixed income at Swiss private
NOT SO EASY
But while appetite is clearly there, Greece's route back to
the capital markets is not as easy as Ireland and Portugal's.
It is in the unique position of having recently restructured
its debt - an act which still lives in the memory of many
"I'm sure I'm not the only fund manager with guidelines that
prohibit me from buying anything that has defaulted in the last
five years," said Gareth Colesmith, senior portfolio manager at
Many investors also question what the future path of
government policy will be in the country, especially given that
the radical left opposition party is currently ahead in the
"In Greece, political risk appears to present the greatest
uncertainty," said Dowding at Bluebay.
Bankers in talks with the Greek debt agency also said one of
the big decisions the country faces is whether to issue in US
dollars, the preference of US-based hedge funds that bought
Greek debt at the height of the crisis, or stick to its own
currency in the hope that investors it has previously burned
Ireland also faced such a quandary ahead of its market
return last year, opting at the last minute to stick with euros
after cross-currency swap rates shifted, said sources close to
that transaction. Portugal also stuck with euros.
In public, Greek officials have been silent on the matter of
currency, but should take heart from the fact that over 3bn of
orders were placed for a senior debt issue from Piraeus on
Tuesday, the first debt sale from a Greek financial since 2009.
(Reporting by John Geddie; additional reporting by Sudip Roy;
editing by Helene Durand, Julian Baker)