Major Greek bondholders on Monday voiced their support for a deal that would slash the value of their holdings as their contribution to keeping the country afloat.
The steering committee of creditors, which includes 12 major investors in Greek bonds and was involved in drawing up last month’s landmark deal, said it would accept the bond swap offer.
Earlier, Greek Finance Minister Evangelos Venizelos warned Athens’ private creditors the bond exchange was the best deal they would get and that he would not hesitate to activate laws forcing losses on bondholders who did not willingly sign up.
“Whoever thinks that they will hold out and be paid in full, is mistaken,” Venizelos said in an interview. “We are ready to activate CACs [collective action clause to enforce losses] if needed,” he said.
Greece and its creditors are in the final stages of talks aimed at a deal that would cancel more than 100 billion euros (US$132 billion) of its private-sector debts — a key part of a 130 billion euros bailout, the second rescue Athens has required.
The lenders, mainly banks, insurers and investment institutions, have to reveal their intentions by tomorrow night.
The latest move is seen as an attempt to build up momentum before the deadline and follows weekend comments from the Institute of International Finance (IIF) bank lobby group that it was confident the bond swap would be completed this week.
Greece is expected to deploy collective action clauses to compel those who decline the offer to take the loss on the value of their bonds.
Sweeping up these investors would maximize the benefit to Greece, meaning such hold-outs do not stand to get a better deal by pursuing legal action and making the process more straightforward.
Bondholders have until 8pm GMT tomorrow to accept the offer of new bonds, which have a longer maturity and pay a lower rate of interest, for their existing ones.
The deal clinched by eurozone finance ministers in the early hours of Feb. 21 involves investors taking a nominal 53.5 percent loss, which equates to a real 73 to 74 percent loss after taking into account the loss on future interest payments.
The IIF has refused to estimate how much of Greece’s 206 billion euros the steering committee holds. The figure has varied during more than seven months of negotiations as some creditors have sold their holdings.
About a quarter of privately held Greek debt is estimated by industry sources to be in the hands of hedge funds. Their intentions have not been made clear and some expect them to leave a decision until the very last minute.
The steering committee includes banks, insurers, asset managers and hedge funds like BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management. A wider creditor group included more than 30 firms.
Under the deal agreed with eurozone officials and the IMF last month, government debt holders are being asked to swap their old bonds for a package of new English law Greek bonds and securities issued by Europe’s rescue fund.
Venizelos said he was optimistic participation would be more than 90 percent, with investors lured by the sweeteners offered — a cash equivalent upfront payment, a GDP warrant offering higher interest if the Greek economy does better than expected and equal treatment for the new bonds with the public sector.
Greece has said it wants 90 percent takeup. If it falls below that, but exceeds 75 percent, it will consult with its EU and IMF partners on how to fill the gap, with or without activating CACs. Below that level, the deal would be off, potentially plunging the eurozone back into crisis.
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