Investors sign up to Greek bond 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.

Preliminary indications showed that as much as €155 billion ($248 billion) of the €177 billion of Greek-law bonds were offered, said a banker who declined to be identified.

€12 billion of debt not under Greek law was also tendered, as was €7 billion of bonds from state-owned companies guaranteed by the Government, the banker said.

With Greece again the focus of the euro-area 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 aid package for Greece, the writedown is a key element in European leaders' efforts to turn the tide against the crisis that has rocked Europe, forcing Ireland and Portugal to follow Greece in requiring bailouts.

The euro and stocks gained before the offer's close as Prime Minister Lucas Papademos told his Cabinet he looked forward to "the maximum possible participation of the private sector".

The offer went very positively and a final result would be released today, a government official said.

Finance Minister Evangelos Venizelos was due hold a press conference at midnight New Zealand time.

"Unofficially we've been hearing that the acceptance rate has crossed 90 per cent," Hans Humes, president of Greylock Capital Management, told Bloomberg Television. "The deal is done and we're going to have to see how the market reacts."

Humes is a member of a committee of private bondholders that negotiated the deal with Athens.

Greece's largest banks, most of its 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 would 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 Government had said it wanted participation above 90 per cent and was seeking a minimum level of 75 per cent.

Compelling holdouts to take part would be likely to trigger insurance contracts on the debt 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 cross market strategist at Norddeutsche Landesbank.

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

The amount of the country's bonds 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 and are not subject to the collective action clauses retroactively added to the Greek-law debt.

- Bloomberg