February 6, 2012 / 9:50 AM / in 6 years

REFILE-Portugal sounds out advisers on debt restructuring -IFR

By Christopher Spink

LONDON, Feb 6 (IFR) - Portugal has been discreetly sounding out advisers on options to restructure its debt. Although the government has yet to formally appoint any firm, IFR has learnt that ministers have been watching developments in Greece closely with a view to replicating elements of any final agreement.

Some of those consulted are understood to have advised Portugal to follow a similar path to Greece’s private sector involvement (PSI) plan, to persuade private sector bondholders to take a voluntary haircut on their bonds, if the latter proves successful over the next six weeks.

“If there is success with PSI in Greece, then it could open the eyes of some governments,” said one sovereign debt adviser involved in such preliminary discussions. “It would show that after all debt reduction is possible and not the end of the world. That could create an interesting precedent.”

Advocates of a Portuguese debt restructuring urge that a decision be taken swiftly. Such procrastination has made the Greek experience far more complicated than it needed to be.

“The lesson from Greece is that getting money from the official sector and letting the financial sector escape, with at least 40 billion euros in bond repayments (made by the official sector to investors), means you have fewer restructuring options,” said Mitu Gulati, a professor at Duke University specialising in sovereign restructuring.

Concerns have mounted that Portugal might have to revise its 78 billion euro bailout from the EU and IMF because it would be unable to return to the market after the three-year programme finishes in mid-2014. An 11-year 6 billion euro bond maturing that June is currently yielding about 20 percent.

Other countries in peripheral Europe have seen their bond yields come down since the introduction of the ECB’s three-year liquidity scheme in December. But Portugal’s have remained at elevated levels, even after Germany’s Chancellor Merkel said PSI only applied to Greece.

Over the next two years, Portugal has two other longer-term bond issues maturing with a combined par value of 18.9 billion euros. However, the adviser said that, as with Greece, the country also had a revolving series of shorter-term paper to keep rolling over.

For example, over the rest of this year 16.4 billion euros of such paper, with maturities of less than three years, comes due.

“It’s a misconception that Portugal is out of the market until 2013. It has to be in the market regularly through issuing short term and it’s hurting,” said the adviser.


The situation eased slightly last week with a 1.5 billion euro auction of three and six-month paper, each yielding less than 5 percent. However, that still represents a significant spread over Italy, which can currently get two-year money at 3.2 percent.

Portugal has also made progress with its privatisation programme, unlike Greece. At the end of December it agreed to sell a 21 percent stake in Energias de Portugal to China Three Gorges for 2.7 billion euros, putting German energy utility E.ON’s nose out of joint.

“The deal shows that Portugal can resist pressure from the EU and Germany,” said one Lisbon-based lawyer.

And last week Portugal also sold a 40 percent stake in its power grid company REN to China State Grid and Oman Oil for 592 million euros.

In a speech in London last week finance minister Vitor Gaspar said that three transport-related deals were due to be agreed in the first half of this year. He did not respond to requests for comment on talks he may have had with advisers. Lazard is believed to be speaking to the government.

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