News from AAP

Greek debt exchange set to take place on 12th March

Print This Post A A A

The debt swap between Greece and its private sector creditors will be held on March 12, a Greek finance ministry source says after a eurozone debt bailout deal was reached in Brussels.

“The debt exchange will take place on March 12,” the source said on Tuesday, shortly after Finance Minister Evangelos Venizelos confirmed the government would prepare the offer for private creditors.

Under the terms of the Brussels accord, Greece will get 130 billion euros ($A160 billion) in direct aid, helping it avert a debt default next month, in return for tough new austerity measures and tighter EU-IMF oversight of its economy.

Also agreed was a private creditor writedown worth another 107 billion euros ($A132.32 billion), helping reduce the country’s debt mountain of 350 billion euros ($A432.82 billion) to more manageable levels.

Bankers, insurance companies and hedge funds that hold Greek government bonds will get precise proposals in the coming days on the debt swap, deciding whether to take a 53.5 per cent loss on their holdings.

After months of talks, it seems likely that most private creditors will accept the deal, mindful that they could get nothing at all if Greece were to default.

On March 20, Athens must be able to meet debt repayments of about 14.5 billion euros ($A17.93 billion).

According to the finance ministry source, if Greece gets at least 66 per cent of the private creditors to sign up the deal, it plans to impose a Collective Action Clause (CAC) which would force any hold-outs to accept it too.

“The government will see on March 9 if the 66 per cent necessary to impose a CAC is met,” the source said.

At issue is the idea that the private creditor debt swap has to be judged to be ‘voluntary’ overall, as it would be if two-thirds sign up.

If it cannot be classed as voluntary, then those private creditors opposed to it could invoke their Credit Default Swaps, a type of financial instrument taken out to insure against a loss on an investment.

Should that happen, the whole deal could begin to unravel, leading to heavy costs for the counterparties to the CDS deals.

Upon his return to Athens, Finance Minister Evangelos Venizelos said rating agencies “might declare Greece in selective default” while the debt-swap operation was ongoing.

“A selective default is only critical if the ECB (European Central Bank) and the eurozone consider it so. There is a full mechanism to cover liquidity in the meantime,” Venizelos said.