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Greek bond holders prepare for 50% ‘hair cut’ discussions involving 100bn Euros

Thursday, November 17th 2011 - 22:20 UTC
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IIF chief Charles Dallara encouraged with the prospects of a deal IIF chief Charles Dallara encouraged with the prospects of a deal

Greece and holders of its debt hope to agree on a proposal to halve its privately held debt within weeks, both sides said on Thursday, raising hopes that a key pillar of Greece's 130 billion Euros bailout is still on track.

Charles Dallara, managing director of the Institute of International Finance (IIF) who has been negotiating on banks' behalf, said after a meeting in Frankfurt with some Greek creditors that he was “encouraged” about the prospects for a deal.

Under a now-defunct deal in July, private bondholders planned to swap existing bonds for new, longer-maturing paper worth 21% less to help Greece as it stumbled under debt currently equivalent to 162% of GDP.

It soon became apparent, however, that the 'haircut' was insufficient and last month the IIF agreed with Greece and EU leaders to take a 50% loss to put the country on a more sustainable path back to solvency. However, the swap is far from a done deal.

Greek officials have been meeting individual bondholders around Europe, and may travel further afield. Reaction from financial institutions to the proposed new deal has so far been “mixed,” according to Greek financial sources.

”The deal is certainly more aggressive initially (than the previous one) but if we end up having a more sustainable debt I think this will be beneficial for everybody“ said the Greek official who added that there have been no formal contacts with the IIF.

In Frankfurt, Dallara said holders of Greek debt had formed a committee of creditors to negotiate a deal and hoped talks would start as soon as possible. The committee represents “70% to 80%” of creditors.

The two sides now have a limited time to thrash out the details in order to unblock financial aid that Athens urgently needs to avoid a hard default, something that would badly shake the Euro zone.

Implementation could come as soon as early January, the IIF chief said, though he pointed out that international lenders' approval of Greece's new, bigger bailout was crucial to an agreement.

To get that, Athens must satisfy EU, IMF and ECB inspectors with its efforts to shrink its budget deficit and show it has cross-party support for the bailout, neither of which is certain.

”I don't envisage a broad range of options this time,” said Dallara, who held talks with new Greek Prime Minister Lucas Papademos, a former ECB vice president, in Athens on Wednesday and said he sensed new momentum from Greece's leadership.

The Finance ministry in Athens said fewer than four options would be presented to bondholders and could include a combination of bonds, cash and guarantees.

Greek total debt stands at 340 billion Euro, of which 50bn with Greek banks; 45bn with EU banks and 100bn with other investors such as insurance companies, pension funds, hedge funds.

Categories: Economy, International.

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