March 8, 2012 / 9:07 AM / 8 years ago

Massive take-up of Greece bond swap offer

ATHENS (Reuters) - Greece secured an overwhelming acceptance of a bond swap offer to private creditors and beat its own most optimistic forecasts, a senior official said on Thursday after the deadline expired on a deal needed to avoid a chaotic debt default.

Police officers shout slogans as they protest against their pension fund's participation in the Greek bond swap in Athens March 7, 2012. REUTERS/John Kolesidis

A government official, speaking on condition of anonymity, said take-up on the offer was around 95 percent an hour before the offer closed at 8 p.m. British time with responses still coming in.

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros (83.5 billion pounds) from Greece’s crippling public debt.

Preliminary results from the offer are expected to be announced officially at 0600 GMT on Friday and Finance Minister Evangelos Venizelos will hold a news conference before a call with euro zone finance ministers in the afternoon.

After initial fears that the deal could fail altogether, pitching Greece and the euro zone into fresh crisis, the unexpectedly strong result may mean that Athens can avoid enforcing the exchange on recalcitrant holdouts.

The government had been expected to activate so-called collective action clauses (CACs) on all 177 billion euros worth of bonds regulated under Greek law.

That would potentially trigger payouts on the credit default swaps (CDS) that some investors held on the bonds, an event which would have unknown consequences for the market.

The private sector involvement (PSI) deal is a key element in a broader international bailout aimed at averting a chaotic default by Greece and a potentially disastrous banking crisis across the euro zone.

The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the 130 billion euros bailout agreed last month.

“If all goes well, tomorrow we will be able to announce that a debt burden of 105 billion euros has been lifted from the Greek people,” Venizelos told parliament earlier in the day. “For the first time we are cutting debt instead of adding to it.”


Despite the apparent success, the deal will not solve Greece’s deep-seated problems and at best it may buy time for a country facing its biggest economic crisis since World War Two and staggering under debt equal to 160 percent of its gross domestic product.

However financial markets rose strongly as the threat of an immediate and uncontrolled default receded.

Bank stocks rose sharply and the risk premium on Italian and Spanish government bonds fell as investors hoped a Greek deal would curb the likelihood of any contagion spreading to other weaker euro zone economies.

Euro zone ministers could decide whether to clear the overall bailout package in their conference call on Friday afternoon, although they may leave the final decision until a face-to-face meeting on Monday.

Athens must have the funds in place by March 20 when some 14.5 billion euros of bonds are due, which it cannot hope to repay alone.

Greece has staggered from deadline to deadline since the crisis broke two years ago and several of its international partners have expressed open doubts about whether its second major bailout in two years will be the last.

Underlining the severe problems facing Greece after five years of deep recession, data on Thursday showed unemployment running at a record 21 percent in December, twice the euro zone average, with 51 percent of young people without a job.

Police officers shout slogans as they protest against their pension fund's participation in the Greek bond swap in Athens March 7, 2012. REUTERS/John Kolesidis

There has been growing resentment over the austerity medicine ordered by international creditors which has compounded the pain from a slump which has seen the economy shrink by a fifth since 2008.

But Greece, totally reliant on international support to stave off bankruptcy, has also infuriated both the European Union and the International Monetary Fund with its repeated failure to push through promised reforms.

“We have shown a lot of solidarity with Greece,” German Finance Minister Wolfgang Schaeuble said late on Wednesday. “Everyone knows that the real problems of Greek society are in Greece and not abroad.”

Additional reporting by Harry Papachristou and Angeliki Koutantou and Aloisio Alves in Rio di Janaeiro; writing by James Mackenzie; editing by Jon Boyle

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