Greece buys itself (cheap)

Part 1546 of the Greek debt restructuring saga. Greece has made a formal bond buyback offer to its private creditors. A range of acceptable prices has been listed. Bondholders will place offers and those will be allocated via Dutch auction, up to 10 billion euros in total. Greece could end up reducing its debt pile by 30-40 billion euros, about 10-12% of the total. Once more, these tweakings are a requirement for receiving bail-out money (the next tranche of the second programme, in this case). The IMF was particularly insistent here.
So if you already took a 53,5% haircut in March and now sell those bonds at a 60-70% discount, you could end up getting paid well below 20 cents on the dollar in the end.
So why go for it? Well, liquidity. This is a chance to offload your Greek book at once and for prices above market levels. Could you really dispose of those positions in the open market, at those prices? Maybe, maybe not. Also you could wait it out and hope for the best, maybe Greece will pay you more than 40-30% on your bonds; but those mature after 10 years and for 20 years. Fancy your odds?

Finally, please stop accussing the maligned Troika of not helping out. The 10 billion euros for the buyback comes from bail-out fund short term securities used as payment medium. And Greece has been gifted all kinds of friendly treats: interest rates on the first bail-out have been restrospectively reduced (so that, for example, Spain now losses money lending to Greece), maturities have been exasperatingly extended, and a ten-year holiday on second-bail out interest payments has been granted.

This is in fact a massive writedown in disguise. For now, private investors get the short straw (the high hat, some may say). One wonders, is wiping out private creditors enough? Or will public lenders also need to be obliterated before Greece is officially deemed viable?

In the meantime, is anybody trying to create private sector jobs in the Hellenic Republic? You know, those that employ people who actually produce things and who can then pay taxes and export stuff abroad, so that the country may be less dependent on borrowing to survive. Call me naive if you want. I probably deserve it.

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