Investors agree to Greek swap

PRIVATE investors have agreed to swap about 85 per cent of their Greek government bonds for new securities in the biggest sovereign debt restructuring in history.

PRIVATE investors have agreed to swap about 85 per cent of their Greek government bonds for new securities in the biggest sovereign debt restructuring in history.

Preliminary indications showed that as much as ?155 billion ($A193 billion) of the ?177 billion of Greek-law bonds were offered. Twelve billion euros of debt not under Greek law was also tendered, as was ?7 billion of bonds from state-owned companies guaranteed by the government.

With Greece again the focus of the euro-zone debt crisis now in its third year, the goal of the exchange is to reduce the ?206 billion of privately held Greek debt by 53.5 per cent. Together with a ?130 billion second Greek aid package, the write-down is a key element in European leaders' efforts to turn the tide against the crisis that has roiled Europe, forcing Ireland and Portugal to follow Greece in requiring bailouts.

The euro and stocks gained before the offer's close in Athens.

"Unofficially we've been hearing that the acceptance rate has crossed 90 per cent," Hans Humes, president of Greylock Capital Management, said. "The deal is done and we're going to have to see how the market reacts." Mr Humes is a member of a committee of private bondholders that negotiated the deal with the government.

Greece's largest banks, most of the country's pension funds and more than 30 European banks and insurers, including BNP Paribas and Commerzbank, agreed to the offer.

While Greece would prefer a voluntary deal, the government has said it will use so-called collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement fell short and it got approval from investors to change the bonds' terms. The Greek government had said it wanted participation above 90 per cent and was seeking a minimum 75 per cent.

"Ideally we get above 90 and it doesn't need to be done," said Geoffrey Yu, a currency analyst at UBS.

Compelling holdouts to take part would likely trigger insurance contracts on the debts known as credit default swaps. "We don't see the Greeks failing to get a deal because the risk for everyone involved is just too high," said Tobias Basse, a market strategist at Norddeutsche Landesbank.

The 17-nation euro strengthened the most in two weeks against the dollar before the deadline. European stocks rallied the most in a month.

"The markets had a very long time to be prepared for this," said Janet Henry, chief European economist at HSBC Holdings. "There's a lot more optimism in markets relative to where we were at the end of last year." She cited the "breathing space" provided by the European Central Bank's liquidity offer for banks.

In the exchange, investors will receive new bonds with a face value of 31.5 per cent of the old ones, together with notes from the European Financial Stability Facility. The new debt is governed by English law and comes with warrants that will provide extra income in years when Greek economic growth exceeds thresholds. The net present value loss for investors is more than 70 per cent.

The swap aims to help reduce Greece's debt to 120.5 per cent of gross domestic product by 2020, from about 160 per cent. Greece is in its fifth year of a recession.

The amount of the country's bonds that are under other than Greek law totals ?29 billion, or 14 per cent of the amount eligible for the swap, Frankfurt-based KfW said. Those bonds are governed by different rules.

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