Published December 12, 2012
ATHENS – Greece on Wednesday asked its foreign lenders for extra money to complete a bond buyback that forms part of its bailout, with policymakers and analysts calling the scheme a success even though it narrowly missed its debt reduction target.
The scheme, intended to put Greece's debt mountain on a more sustainable footing and unlock cash to avoid bankruptcy, had a maximum budget of 10 billion euros to buy back bonds trading at a huge discount to their face value of about 30 billion euros.
But Athens had to offer investors a higher-than-expected price, raising the plan's funding needs to 11.29 billion euros if it is to buy all the 31.9 billion euros of bonds that investors offered.
Greece's debt agency said it would buy back the entire sum offered if it got additional financing from its lenders.
"It is a good outcome, despite the need to increase the funding," said Theodore Krintas, head of wealth management at Attica Bank.
"The bottom line is that it reduces debt."
The buyback accounts for about half of a broader debt relief package that lenders agreed for Athens last month, and its success is essential to keeping the International Monetary Fund committed to a rescue plan mounted jointly with the EU.
IMF director Christine Lagarde has already signaled that she is satisfied with the outcome.
"I can only welcome the results that have been produced by the debt buyback," she said late on Tuesday after Greece confidentially revealed the results to lenders.
Euro zone finance ministers and Lagarde are to discuss the buyback in a euro group meeting on Thursday. If they deem it successful, they will release 34.4 billion euros in loans that Greece needs to help refloat its banks and its economy.
"I consider it likely that we can reach an agreement on paying the next loan tranche in the meeting tomorrow," said Finance Minister Jutta Urpilainen of Finland, one of the sharpest critics of Greek reform efforts.
A euro zone official told Reuters late on Tuesday that the buyback left a 450 million euro hole in their plan to cut the Greece's debt to 124 percent of GDP by 2020.
But analysts said the euro zone finance ministers should not find it difficult to tie up the loose ends on Thursday.
"There was a lot of skepticism a few weeks ago that they would manage to do this at all. I don't think anyone will want to raise a big fuss, they will find a way to disburse the aid," said Sassan Ghahramani, CEO at New York-based SGH Macro Advisors, a hedge fund consultancy.
Greece will pay an average price of about 33.8 percent of face value on all series of bonds, the debt agency said - above estimates given at the time the scheme was agreed last month.
Athens had to extend the buyback deadline to Tuesday after falling short of the 30 billion euro target, and had to rely on its own cash-strapped banks to push it above that threshold.
Greek banks are estimated to have contributed almost all their bond holdings to make sure the plan works, and may incur about 2 billion euros in losses from their participation, Greek central bank chief George Provopoulos told lawmakers, citing bankers' own estimates. He did not provide further details.
Greek banks are in talks with the Finance Ministry to recoup some of the losses through deferred taxation, Provopoulos said.
The bulk of the remaining offers is estimated to have from hedge funds that have purchased the bonds over the past months at rock-bottom prices.
(Additional reporting by Lefteris Papadimas in Athens and Jussi Rosendahl in Helsinki, writing by Harry Papachristou; Editing by Kevin Liffey)