November 15, 2017 / 1:05 PM / 2 years ago

Greece readies new benchmarks for 30 billion euro debt swap

ATHENS (Reuters) - Greece on Wednesday invited holders of about 30 billion euros in its debt to swap 20 outstanding bonds for five new benchmark ones, a move designed to help wean it off reliance on rescue funds and regain full access to financial markets.

Euro coins are seen in front of a displayed Greece flag in this picture illustration, June 29, 2015. REUTERS/Dado Ruvic/File Photo

The eligible papers are 20 bonds issued in 2012 in a voluntary scheme under which private bondholders took a 53.5 percent haircut - or value reduction - on the nominal value of their holdings. They will be bundled into five new issues.

The country has been kept afloat with bailout funds since 2010 and is anxious to draw a line under financial upheaval from next summer, when it aims to be able to service its debt itself.

DZ Bank rates strategist Sebastian Fellechner said Greek bond spreads had tightened against German ones in anticipation of the swap, which Reuters reported as an exclusive in September.

“This is very significant news for Greek government bonds because it means more liquidity for the market,” he said.

The new bonds will have durations of five, 10, 15, 17 and 25 years, with coupons ranging from 3.5 to 4.2 percent, according to an announcement from debt agency PDMA.

That means they will cover a similar part of the debt curve, but the new bonds will be larger — of the benchmark size of around 5 billion euros ($5.9 billion) that can attract long-term investors — and maturities will be smoothed out.


“We are doing the necessary spadework to ensure appropriate liquidity conditions for future exits to the market,” Finance Minister Euclid Tsakalotos told Reuters.

Greece plans to tap bond markets again after its current bailout review is concluded.

A source close to the process said the swap would have no impact on the country’s debt levels. At about 178 percent of national output, the country debt is the highest in the euro zone after three bailouts since it toppled into crisis in 2010.

“The transaction is neutral, debt and fiscal-wise,” a source close to the process told Reuters. “That was also one of the conditions of lenders.”

One banker said the offer was unusual since it was duration-neutral, and the coupons would be fixed.

“Better trading in Greek government bonds should bring down their borrowing costs in the long term on a relative basis, if not an absolute basis if interest rates rise,” that banker said.

The offer is voluntary, with an expected deadline 1600 GMT on Nov. 28. The settlement date is Dec. 5.

The exercise, the PDMA said, was to “normalise the (Hellenic) Republic’s yield curve”, providing the market with a limited series of benchmark securities anticipated to have “significantly greater liquidity” than existing ones.

About 80 percent of Greece’s outstanding debt of 319 billion euros is held by its official lenders from the euro zone and the International Monetary Fund. Αbout 40 billion euros worth is tradable on the secondary market.

Bondholders include domestic banks, pension funds and foreign investors. Greek pension funds holding bonds worth about 6 billion euros would participate in the swap, a central bank official told Reuters.

The Bank of Greece manages a big part of Greece’s pension fund assets.

Greece mandated BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs, HSBC and Merrill Lynch as joint lead managers for the swap.

($1 = 0.8471 euros)

Additional reporting by Renee Maltezou in ATHENS, Dhara Ranasinghe and Abhinav Ramnarayan in LONDON, writing by Michele Kambas; Editing by Jeremy Gaunt and John Stonestreet

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