Greece edges toward successful debt swap

Greece edged closer to clinching a crucial bond swap, with a group of key investors declaring their support as a Thursday deadline loomed for a long-sought deal to avoid a sovereign default. Officials forecast success for the Private Sector Involvement (PSI) operation, which aims to cut Greek debt by up to 107 billion euros ($142 billion) and unlock a new bailout from eurozone partners worth 130 billion euros. "The information we have so far is positive," Greek government spokesman Yiannis Stavropoulos told Skai Radio. Private investors holding 111.5 billion euros, or 49 percent of eligible debt, have indicated they would participate in the bond swap, in addition to a bloc of creditors that voiced support on Wednesday. A participation rate of 75 percent of debt issued under Greek law is being sought for the deal. Athens has toughened its stance to convince creditors to accept heavy losses under the programme as the deadline of 2000 GMT Thursday drew near. "These days are particularly crucial. The success or failure (of the swap) will be decided by midnight on Thursday," Finance Minister Evangelos Venizelos told private Real FM radio. Under the deal, private banks, insurance companies and investment funds are to write off about half of the face value of what they are owed. Greece has already passed retroactive legislation to force recalcitrant bondholders to participate if a substantial majority agrees to the debt swap. And it warned Tuesday that rejection of the hard-won agreement to cut privately held debt could cost investors much more in the longer term. "Greece's economic programme does not contemplate the availability of funds to make payments to private sector creditors that decline to participate," a statement issued by the Public Debt Management Agency (PDMA) said. Meanwhile, 32 creditors on a committee of private investors that helped negotiate the bond swap said they "strongly support the recent agreements among Greece, euro area authorities and the IMF." Investors from the Private Creditor-Investor Committee for Greece hold 84 billion euros in Greek debt, "or 40.8 percent of the 206 billion euro total PSI eligible debt," a statement from the group said. Jean Lemierre of the French bank BNP Paribas, who was part of the debt talks, called that "a good indicator of the trend" among private investors. "It is very important now to see that many institutions that hold large amounts (of Greek debt) are taking part in the exchange," he added. The pledge pushed Greece closer to the participation rate of at least 75 percent of investors Athens is targeting for bonds issued under Greek law. About 88 percent of the 206 billion euros in eligible debt is issued under Greek law. Failing this, Greece has said the operation might be called off, which could lead to a messy default as early as March 20, when the country is due to reimburse 14.4 billion euros in debt. Investors holding debt issued under Greek law must decide by late Thursday whether to write off half of the money they are owed, while those who hold debt issued under foreign law have until April 11 to decide. In addition to the 84 billion euros worth of debt to be swapped by the bloc of 32 banks, insurance companies and investment funds, about 18 billion euros in bonds owned by Greek retirement funds and held by the Bank of Greece were also expected to be tendered. The German reinsurance giant Munich Re has indicated it would take part with the roughly 1.5 billion euros in Greek bonds it owns. The German bank Hypo Real Estate (HRE), which holds the most Greek debt of any institution outside Greece, has not made a public statement since details of the plan were announced on February 21, but indicated prior to that that it would participate as well. This would take the total to roughly 111.5 billion euros, or 54 percent of the total debt according to a calculation made by AFP. Under the terms of the pending deal, investors are to receive new debt with a 30-year maturity, EU-backed notes and securities linked to Greece's future output. Speaking to France's Le Figaro newspaper on Wednesday, EU economic affairs commissioner Olli Rehn said he thought the operation would proceed "without a hitch since the operation is interesting financially for the private sector." The plan's success is a key condition for a 130-billion-euro rescue package to save Greece from a debt default and avoid another potential global crisis. If all goes well, the Eurogroup of eurozone finance ministers will evaluate the situation at a teleconference on Friday, and meet on Monday in Brussels, Venizelos said. The head of the European Commission, Jose Manuel Barroso, said Wednesday that the European Investment Bank could provide 650 million euros in aid for small- and medium-sized Greek enterprises that are currently having problems finding liquidity. Venizelos scolded a handful of small Greek funds that hold about two billion euros worth of debt, roughly one percent of the total value of bonds earmarked for the debt swap, which declined to participate. "The international market finds the offer lucrative. What sort of message do we send? That we prefer for the country to go bankrupt?" Venizelos said. "If the PSI fails, these bonds will be worth a big zero," he warned.