(Adds Greek government denial)
NEW YORK, September 30 (IFR) - Greece may be looking into kicking the can into the next century.
One of the options the sovereign is looking at is offering a 100-year bond in return for outstanding short-term debt, said a banker at one of the institutions advising Greece who said he saw the plans being studied.
Two senior Greek government officials denied that such a plan was being considered. “We are obviously not working on this,” one told Reuters on condition of anonymity.
BNP Paribas, Deutsche Bank and HSBC are advising the sovereign on its current debt restructuring exercise, alongside Lazard. Officials at other banks on the deal would not confirm that the new option is being looked at. One said the main focus was still on the current proposals going ahead without amendments.
Before Greece’s second EUR109bn bail-out was agreed on July 21, some Eurozone officials had urged the country to try and swap existing debt for bonds with maturities of up to 40 years. That was amended to a proposal to swap or roll over EUR135bn, or 90%, of outstanding debt maturing before 2020 into new bonds backed by Triple A issuers with longer maturities of up to 30 years.
It was expected that the move would deliver an effective 21% haircut to principal. Private sector bondholders would also be able to participate in a cash buyback at a steeper discount, now mooted at 50%. Some EUR20bn was earmarked for this purpose.
However, given the strong demand that the century bond of Mexico enjoyed a few weeks ago, the alternative plan could make sense.
A new 100-year bond for Greece would offer investors a more convex security which would be less volatile if interest rates rise. That high convexity would also mean larger nominal face value swings for smaller yield moves, a feature would make a century bond attractive for hedge funds. The likely high liquidity of a theoretical 100-year bond from Greece would also make it desirable.
A 100-year bond to restructure Greece’s debt would have the advantage of sending a strong signal to the market that Greece’s refinancing problems had been put away for a very long time.
The banker said that the 100-year bond being considered would be structured like the Brady bonds used to rescue a number of Latin American countries which defaulted on commercial bank loans in the 1980s.
Most of the bonds that resulted from the Brady plan had a 30-year tenor and were partly backed by US Treasury bonds. The Brady plan generated over USD160bn in bonds, which made these securities highly liquid.
While this is just another option being studied, bankers believe the current plan is the preferred path. Bondholders were invited to tell their domestic regulators whether they planned to accept the currently tabled exchange offer by September 9.
The Greek finance ministry has not released the results of this exercise but banking sources close to the situation have indicated that investors holding only 70% of the identified bonds had definitely said they would participate. Greece has reserved the right not to proceed unless 90% of bondholders by value accept the offer.
However, one banking source close to situation said the plan was now likely to proceed along the current terms even if that level could not be reached. The offer is likely to be published in October once the eurozone authorities, the IMF and the ECB have decided whether to disburse the next tranche of the original bail-out and all 17 eurozone parliaments have ratified the enhancements to the EFSF.
Finland backed the changes on Wednesday. Germany’s Bundestag is due to vote on Thursday. The last to vote, Slovakia, is not due to give its verdict until mid-October