ATHENS Greece has yet to decide how much to offer bondholders under a debt buyback plan that is central to its international bailout deal, but the price is likely to vary depending on the bond, a Greek finance official said on Thursday.
Questions have arisen over whether Athens will attract enough interest from bondholders, who must decide whether to participate in a process that is needed to ensure Greek debt is deemed viable in the coming decade.
A deal, clinched early this week after lengthy wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country stays afloat. The terms of the buyback will determine its success.
"It makes sense for it to happen in that way," the senior official told Reuters when asked if Greece would buy back the 20 eligible bonds at different prices rather than a uniform price.
Still, the official said the government had yet to complete the terms of the buyback, which are expected to be announced next week. Under the plan, Greece aims to cut its overall indebtedness by buying back bonds for less than it would have to pay if its creditors held them to maturity.
On the secondary market, Greek bonds eligible under the buyback ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23, according to Reuters data.
Greece's lenders agreed this week that the bonds would not be purchased for more than the closing price on that date. The bonds have a nominal value of 63 billion euros.
A senior Greek banker said some of the country's banks held Greek bonds at 22-23 euro cents on their books, meaning they were likely to book a profit on the deal. However, the banks together were likely to forego about 3-4 billion euros in interest payments over the next 10 years if they participated.
Another banker gave different figures, saying the banks on average held the bonds at 25 euro cents on their books and could miss out on as much as 5 billion euros in interest if they took part.
Athens is expected to use 10 billion euros from its rescue package to buy back around 30 billion euros' worth of debt, cutting its outstanding obligations by around 20 billion.
The official played down any suggestion that Athens could use unexpectedly high demand in the buyback to spend even more than the 10 billion euros of bailout money to cut debt further, saying: "This is a luxury we do not have."
Athens must complete the buybacks by December 13 to receive more than 30 billion euros in bailout payments that the euro zone and the International Monetary Fund have withheld.
If Greece manages to buy back 30 billion euros of bonds, it would cut its debt level by 11 percentage points of gross domestic product by 2020.
That is about half the debt reduction Greece is supposed to achieve by that date under the accord struck earlier this week, with the rest coming from a package of debt relief measures and privatization revenues.
Deutsche Bank DKBGn.DE will be the lead manager of the bond buyback deal, with Morgan Stanley (MS.N) as deal manager, a senior official previously told Reuters.
Athens has said it is vital that the buyback scheme is successful, but skepticism has lingered that it will fail to draw enough interest from Greek banks and pensions funds who stand to lose from the deal.
Greek banks - whose shares fell 17 percent in the two days following Tuesday's announcement of the buyback - are estimated to hold nearly 17 billion euros of Greek bonds and Greek pension funds roughly 8 billion euros' worth.
One Greek banker said all the nation's banks were likely to Take part, especially since they themselves were awaiting recapitalization funds from the next installment of aid.
"I expect that all Greek banks will participate," the banker said. "The buyback plan failing would sink the prices of the (Greek) bonds they hold."
However, the head of the country's biggest pension fund IKA-ETAM, which holds Greek bonds worth 800 million euros, told Reuters the fund had not yet decided whether it would join in.
A repurchase price at about 35 cents on the euro is seen as a golden investment opportunity for hedge funds which have bought the bonds at rock-bottom prices.
A finance ministry official and independent private analysts have said hedge funds might hold as much as 25 billion euros of Greek bonds bought at very low prices.
Moody's ratings agency said the deal offered relief to the liquidity-starved economy. However, it added in a report: "It is uncertain whether there will be sufficient participation in the buyback process to contribute to a meaningful debt reduction."
(Additional reporting by Emelia Sithole-Matarise in London and Renee Maltezou in Athens, Writing by Deepa Babington, editing by Swaha Pattanaik and David Stamp)