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Greek Banks Agree to Debt Buyback as Nation Races to Free Up Aid

December 07, 2012

Greek Banks Agree to Debt Buyback as Nation Races to Free Up Aid

The entrance to the National Bank of Greece SA headquarters is seen in Athens, Greece. Photographer: Kostas Tsironis/Bloomberg

Greece’s three biggest banks said they participated in the government’s 10 billion-euro ($13 billion) buyback of sovereign debt, the second hit to their bond holdings this year as the nation rushes to cut a debt load that threatens further international aid.

National Bank of Greece SA, the largest lender, Alpha Bank SA and Eurobank Ergasias SA said in statements to the Athens bourse today that their boards agreed unanimously to join the offer, which ended at 7 p.m. Athens time. No further details were provided.

Greece is using a 10 billion-euro loan from Europe’s bailout fund to buy back bonds issued earlier this year and unblock aid from the European Union and International Monetary Fund. The buyback was part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014.

Stung by the biggest sovereign restructuring in history earlier this year, the Greek banks got a promise that they won’t be subject to any legal proceedings from shareholders for participating in the offer. Finance Minister Yannis Stournaras said today the banks would have legal indemnity from potential shareholder lawsuits.

Greek Holdings

The buyback is aimed at the 62 billion euros of new bonds issued when Greece restructured its privately held debt in March. Greek banks held about 15 billion euros of the bonds, while the country’s pension funds had 8 billion euros, according to a Nov. 27 draft report by the troika of the European Commission, European Central Bank and IMF.

Hellenic Postbank SA (TT) and Attica Bank SA also said they would participate, while Piraeus Bank SA, Greece’s fourth- biggest lender, declined to comment on the buyback.

The prospects for a successful buyback improved after the government raised the offer price above the level of Nov. 23, which euro-area finance ministers had said would be the maximum. The prices offered for bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the Athens-based Public Debt Management Agency on Dec. 3. That compares with the average price of 28.1 percent of face value on Nov. 23, according to a note from Royal Bank of Scotland Group Plc.

Hedge funds held as much as 22 billion euros of Greek government bonds, Nomura analysts Dimitris Drakopoulos and Lefteris Farmakis estimated in a Nov. 30 report.

Debt-Cut Target

Stournaras told reporters in Athens earlier today that he “has no sense yet” of the success of the offer. Official results may not be announced until next week.

Investors who joined the buyback will receive payment in six-month bills from the European Financial Stability Facility, the Greek debt agency said.

The IMF set the 2020 debt-cut target as a condition for continuing to fund a third of Greece’s bailout program. IMF Managing Director Christine Lagarde said after the euro-area finance ministers’ meeting that the fund will examine the results of the buyback before deciding whether to approve disbursement of additional aid.

The buyback accounts for 11 percentage points, or more than half of the planned 20 percentage-point drop in the debt.

While Greece has gotten pledges for 240 billion euros of aid, the funds have been blocked since June as the government tries to get its bailout program back on track after it was disrupted by two elections and a deepening recession.

Finance ministers plan to make a formal decision on Greece’s 34.4 billion-euro disbursement by Dec. 13.

Deutsche Bank AG and Morgan Stanley were appointed to manage the buyback, according to the Greek debt agency.

To contact the reporters on this story: Maria Petrakis in Athens at;

To contact the editors responsible for this story: Stephen Foxwell at;

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