LONDON — Greece moved a step closer to completing a complex debt-reduction deal on Friday when the country’s largest banks said they had agreed to sell their discounted bonds back to the government.
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| Yannis Stournaras, left, and Pierre Moscovici, second from right, with Jean-Claude Juncker, right, at a meeting Monday in Brussels. |
The buyback, which aims to trim about 20 billion euros, or nearly $26 billion, from Greece’s 323 billion euro debt, was scheduled to close at the end of the day on Friday. But people involved in the transaction said they did not expect an official announcement of the results until early next week.
Greece’s so-called troika of international overseers has said meaningful participation by bondholders in the buyback program will be crucial to the release of more than 40 billion euros in the next installment of bailout loans. The country desperately needs those loans to recapitalize its banks, service the interest on its debt and pay billions of euros in bills.
“It looks as if they will hit the higher range of their expectations,” said Dimitris Drakopoulos, a sovereign debt expert at Nomura in London.
Bankers involved in the transaction say it is too early for Greece to declare victory in the buyback. Given the political and financial sensitivities involved, they say, last-minute snags are still possible.
“It is not done until it’s done,” said one banker involved in the transaction, who spoke on condition of anonymity. “But I am reservedly optimistic.”
The better-than-expected participation of hedge funds, which bankers say have sold 50 to 70 percent of their 24 billion euros in bonds, together with the involvement of the banks, have increased the chances that the buyback will succeed.
The Greek banks are one of the larger groups invested in the country’s bonds. They hold 17 billion euros of the 63 billion euros in private sector debt that is in circulation after Greece’s most recent debt restructuring.
That write-down was overseen by the troika that determines when and if Greece receives each round of bailout money: the European Commission, the European Central Bank and the International Monetary Fund.
The combined participation of Greek banks and foreign investors could be enough to reach the goal of 20 billion euros in net debt reduction that Greece and the troika set for the buyout. To reach that goal, Greece would need to buy back bonds worth 30 billion euros in face value because the country has borrowed 10 billion euros from Europe to conduct the buyback program.
The I.M.F. has said it will provide additional bailout loans to Greece if the buyback is successful and the country continues to reduce its debt toward sustainable levels.
Analysts say that while many hedge funds indicated that they might hold out for a higher price, tough talk by government officials and bankers persuaded many investors to take profits now, rather than risk having to absorb losses later.
Since the government announced on Monday a price range of 30 to 40 cents on the euro, the bonds have increased in value, hitting a high of 35 cents late this week. Investors say the increased demand is coming from buyers who think the bonds will push even higher once the buyback is complete and Greece’s financial position improves.
“We are seeing a lot of real money buying these bonds now,” said one large investor who had participated in the exchange. “I am not surprised. Things are finally improving in Greece.”
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