LONDON (Reuters) - Another round of Greek debt relief could make the country's bonds a safer investment than those of several other euro zone countries, a major U.S bank has told its clients.
Morgan Stanley, a market-maker in Greek bonds, said in an online video that if Athens is given the same leeway from European creditors that it received in the past, its debt-to-GDP ratio of 175 percent would carry the "credit risk" of a country with a ratio of just 88 percent.
Seven countries in the euro zone have debt ratios above this, according to Eurostat: Portugal (128 percent), Ireland (123 percent), Italy (128 percent), Belgium (105 percent), Cyprus (102 percent), Spain and France (both 92 percent).
"The credit risk of the 320 billion euros (237 billion pounds) of debt in Greece, may in fact be lower than in some other euro zone countries," said Paolo Batori, the bank's global head of emerging market fixed income strategy told Reuters.
With around 90 percent of Greece's debt owed to public bodies including its euro zone partners, the bloc's EFSF bailout fund and the International Monetary Fund, the make-up of Greece's debt is unique in the single currency club.
Batori argues that a major part of its debt - a 107 billion euro bailout loan from the EFSF - should not even be counted as debt because it bears no interest for the next eight years and is not due to be paid back for 30 years.
The Greek government is lobbying for further debt relief, with new finance minister Yanis Varoufakis said to be targeting 53 billion euros of bilateral loans from other European countries.
Batori said that if these loans were restructured to look like the EFSF loans, then they could also be discounted, making Greece's debts look very manageable.
"When you look at the specific characteristics of the components of the debt, some parts contribute to Greek credit risk less than what the market is thinking, or what a traditional approach implies," said Batori.
Sustainability - the country's ability to pay interest and repay the debt at maturity - is key to assessing the risk attached to investing in these bonds, he added.
Morgan Stanley, one of Greece's 22 primary dealer banks, is not alone in calling for a rethink of Greece's debts.
Japonica Partners, a U.S. investment firm, maintains that under different accounting standards, Greece's net debt is just 18 percent of GDP.
editing by David Stamp