Greece Closes Offer With Bond Swap Set to Pass

Greece closed a bond swap offer to private creditors on Thursday after clearing the minimum threshold of acceptance to push the deal through, moving closer to unlocking funds it needs to avoid a dangerous debt default.

Government officials said before the final deadline for declaring interest passed at 2000 GMT that more than 75 percent of eligible bonds had already been committed.

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 from Greece's crippling public debt.

Preliminary results from the offer are expected to be announced officially at 0600 GMT on Friday before a conference call with euro zone finance ministers in the afternoon.

One of the chief negotiators for the bondholders, Charles Dallara, forecast a "very high" final takeup, though he was unsure if it would hit the 90 percent Greece is aiming for.

Athens had said that it would abandon the deal if it did not receive at least 75 percent participation in the offer and it required two-thirds take-up to deploy a legal device to force recalcitrant creditors to accept the terms.

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 ($170 billion) 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 optimism, 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 a conference call on Friday afternoon although they may leave the final decision until a face-to-face meeting on Monday.

Greece 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.

With over 75 percent take-up secured, well above the required two thirds threshold, Athens should be able to apply collective action clauses (CAC) imposing the deal on all holders of 177 billion euros in bonds regulated by Greek law.

Venizelos is expected to discuss that option on the euro zone ministerial call on Friday.

Athens faces a more complex problem with some 18 billion euros in bonds regulated under international law with a number of hedge funds expected to try to fight a deal in the courts.

It also remains to be seen whether credit default swaps (CDS) which some investors have taken as insurance against a forced restructuring of the debt will be paid out.

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.

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 EU and the IMF 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." ($1 = 0.7625 euros)