Greece and its creditors were to continue negotiations on a debt swap yesterday after late-night talks on Friday edged them closer to a vital deal.
Athens is anxious to strike a deal before tomorrow’s meeting of eurozone finance ministers, just in time to set in motion the paperwork and approvals necessary for Greece to receive a new injection of aid to avoid a messy bankruptcy in March.
“The elements of an unprecedented voluntary PSI [private sector investment] are coming into place,” the Institute of International Finance said in a statement after Friday’s three-hour evening negotiation session, referring to the bond swap scheme.
“Now is the time to act decisively and seize the opportunity to finalize this historic deal and contribute to the economic stability of Greece, the euro area and the world economy,” it said.
The statement seemed to be addressing Greece’s official lenders, the EU and the IMF, who have driven a hard bargain behind the scenes of the negotiations, sources in Athens said.
“We will not know anything for sure before Monday,” a banking source close to the talks said. “The eurozone ministers will examine the proposal and say whether we have a deal. If they say we don’t, we’re back to the negotiating table.”
Private bondholders will likely take a hit of 65 to 70 percent on their holdings, with Greece’s new bonds featuring 30-year maturity and a progressive coupon, or interest rate, averaging out at 4 percent, another banking official close to the talks said.
A 15 percent cash sweetener will be made up of short-term bonds from Europe’s temporary bailout fund, the European Financial Stability Facility (EFSF), two sources said.
“It will be near cash-equivalent short-term EFSF bonds,” one of the sources said.
Haggling over the coupon had held up the long-running talks as Greece raced to wrap up an agreement, raising the prospect of a messy default when Athens faces 14.5 billion euros (US$18.5 billion) of bond repayments in March.
Another source close to the talks said the two sides had been hoping to bag a preliminary deal on Friday, with technical discussions with lawyers continuing over the weekend and into next week.
“There is still work to be done. The two sides are doing what they can, but the paymasters must give their blessing,” the source said.
The source said the European Central Bank’s part in the deal was also discussed.
Greece needs to have a deal in the bag before funds are doled out from a 130 billion euro rescue plan that the country’s official lenders drew up in October.
OUT OF TIME
“The deal must be completed. There is no more time left,” said a Greek government official who requested anonymity.
The swap is aimed at cutting 100 billion euros off Greece’s debt load of more than 350 billion euros. The second bailout — drawn up on the condition that Greece pushes through painful cuts and structural reforms — is expected to reduce Greece’s debt to a more manageable 120 percent of GDP in 2020 from about 160 percent now.