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Greece : no bond swap if low participation

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Greece says it will not proceed with a proposed bond swap deal if private participation in the program falls short of a minimum 90% participation rate.

In a letter sent to foreign governments, Greek Finance Minister Evangelos Venizelos laid out two conditions for Greece to proceed with the deal.
Specifically, that investors holding 90% of all Greek government bonds eligible for the program participate, and including 90% of those bonds maturing between June 30, 2011 and between Aug. 31, 2014.

“If these thresholds (or either of them) are not met, Greece shall not proceed with any portion of the transaction described in this letter if it determines, in consultation with the official sector, that the total contribution of private sector creditors towards the financing needs of Greece and Greece’s debt sustainability is insufficient to permit the official sector to support the new multi-year adjustment program for Greece announced on July 21, 2011,” the letter said.

The letter was sent to 57 foreign finance ministers Thursday asking for their help in compiling data on the amount of Greek government bond’s held by financial institutions in their countries. A portion of the letter was posted on the Athens Stock Exchange website Friday.

In July, European Union leaders agreed to a new EUR109 billion aid program for Greece to cover its financing needs for the next several years. Central to the Greek plan is a distressed-debt exchange whereby the country’s private-sector creditors agree to accept new bonds worth less than their original holdings.
The exchange would offer creditors four choices to swap or roll over their existing Greek government bonds maturing over the next few years, with new 15- and 30-year debt.

The Institute for International Finance, a trade body of the world’s leading banks and author of the proposal, says the plan is expected to slice EUR13.5 billion off Greece’s total stock of EUR350 billion in public debt, while also lengthening the maturity profile of Greece’s debt.

But so far, participation rates have been less-than-hoped for. According to IIF officials, financial institutions holding about 60% to 70% of Greek government bonds have declared their participation–less than the 90% target.

That has forced the Greek government to extend the program to include more bonds. Originally, the program included all bonds maturing between now and 2020. But according to a senior government official, the program would now include bonds maturing up to 2024.

Athens, August 26, 2011 (Dow Jones)