Greece is set to buy back about half of its debt owned by private investors, broadly succeeding in a bond deal that is key to the country’s latest bailout, a Greek government official said yesterday.
Greek and foreign bondholders offered the targeted 30 billion euros (US$38.8 billion) in the deal, which is central to efforts by Greece’s eurozone and IMF lenders to cut its debt to manageable levels.
“The buyback went well in broad terms. The amount offered by investors was within the range expected, about 30 billion euros,” the official told reporters on condition of anonymity.
No formal announcement is expected before tomorrow, another official told reporters.
The buyback accounts for about half of a broader, 40 billion euro EU/IMF debt relief package for Athens agreed last month.
The package doubles the average maturity of its rescue loans to almost 30 years and cuts its interest rates by one percentage point to a level far below 1 percent.
Under its terms, Athens will spend up to 10 billion euros of borrowed money to buy back bonds with a nominal value of about 30 billion euros.
This is nearly half the 63 billion euros of Greek debt held by private investors eligible for the plan.
Since the bonds are to be bought far below their nominal value, the country’s net debt burden would fall by about 20 billion euros.
A successful buyback will ensure that the IMF, which contributes about a third of Greece’s bailout loans, will stay onboard of the rescue. It would also unlock the payment of 34.4 billion euros of aid later this month.
Athens badly needs that money to re-float its ailing economy by replenishing the capital of its cash-strapped banks and settle arrears with government suppliers.
The EU and the IMF have been withholding rescue payments to Greece for six months because it had fallen short of promises to shore up its finances, privatize and make its economy more competitive.
Athens has received 148.6 billion euros in EU/IMF funds since May 2010. It stands to get almost 90 billion euros more by the end of 2014.
However, the rescue comes at a heavy price. Austerity measures taken in exchange for aid have plunged the country into economic depression. Unemployment hit a record 26 percent in September, the highest in the eurozone.
The economy is going through its fifth consecutive year of recession and is expected to have shrunk by 24 percent when recovery begins in 2014.
The buyback was expected to go well after Greek banks, which hold about 17 billion euros of bonds, announced shortly before a Friday deadline they would take part. Two Cypriot lenders also said they would offer their bonds.
Foreign investors have offered between 15 billion and 16 billion euros worth of bonds, Greek newspapers reported yesterday, citing estimates without saying how they got them.