Bloomberg News

Private Holders of Greek Debt Should Reject Swap Offer, DSW Says

March 05, 2012

Private investors in Greek government bonds should reject a voluntary swap offer aimed at reducing the country’s debt load, according to German private investor lobby group DSW.

“We advise investors in securities with short maturities in particular not to accept the offer,” Marc Tuengler, DSW’s managing director, said in an e-mailed statement today. “As the new bonds have maturities of 30 years, investors with bonds that mature in 2012 would face an even higher loss” than the 53.5 percent cut agreed in the debt swap with Greece, he said.

Private creditors reached an agreement with Greek and European officials on the biggest sovereign-debt restructuring in history. The plan seeks to reduce Greece’s borrowings and lower debt. Under the deal, investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility. Private debt holders must indicate by March 8 whether they will take part.

The Greek government is seeking a participation rate of more than 90 percent and set a 75 percent rate as a threshold for proceeding with the transaction.

The risk related to not accepting the offer would be “manageable” because if the approval rate was between 75 percent and 90 percent of the outstanding nominal value, a mandatory swap would be likely to happen, the DSW said. Therefore investors who opposed the swap would be “treated as if they had consented and lose nothing,” the investor group said.

“Should the quota be above 90 percent, the swap will be carried out voluntarily,” it said. “That would mean the maturity of bonds held by investors who decided against the offer wouldn’t change,” Tuengler said in the statement. For bonds maturing in 2012, there would be a “quite likely chance” of a repayment at nominal value, he added.

Dusseldorf-based DSW, which represents about 25,000 private shareholders and retail investors as its members, said on Feb. 28 that Greece needs to provide clarity on the treatment of individual investors in its debt swap or risk a holdout that may trigger the default European leaders are trying to prevent.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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