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Problems related to the consent of foreign and local creditors may sabotage the PSI

06 March 2012 / 19:03:45  GRReporter
2563 reads

Victoria Mindova


The government bonds held by public enterprises may prove to be the little stone to overturn the cart in the PSI process. Among these companies are the state railways OSE, the Athens public transport company OASA and the Greek defence systems enterprise. They took loans from local banks which they guaranteed with Greek government bonds worth a total amount of 6.9 billion euro. If the government activates the collective action clause CACs these bonds will be automatically cut by 53.3%. This may revoke the voluntary nature of the process of debt reduction, because the banks have the right not to accept the reduction of the face value of the bonds, against which the loans to the state enterprises have been granted.

The union of civil servants ADEDY urges that the social security funds in Greece be excluded from the PSI process. Its members say they are ready to take every possible measure to prevent the reduction of the value of bonds which are registered in the balance sheets of health and pension funds. Unionists even interrupted the meeting of one of the pension funds, during which a decision had to be made about the participation of the institution in the PSI. For GRReporter exclusively the Minister of Employment and Social Security George Koutroumanis stated that if today the insurance funds want to sell the Greek government bonds in order to increase their liquidity, they could only receive 25% of their face value. In this case, according to the logic of the ministry, a cut of 53.3% and their replacement with new bonds with a guaranteed rate of return will be more profitable than selling them.

Social security funds have invested about 6.5 billion euro in Greek government bonds and they have an additional, about 14 billion, euro in bonds held by the Bank of Greece as guarantees for loans. Currently, the board directors of various pension and health funds are meeting in order to take a final decision on whether to support the PSI process or not. At present 12 large financial institutions have announced that they will participate, among which are also three Greek ones: Allianz, Alpha Bank, Axa, BNP Paribas, CNP Assurances, Commerzbank, Deutsche Bank, Eurobank EFG, Greylock Capital Management, ING Bank, Intesa SaPaolo and the National Bank of Greece. They hold bonds worth a total of 45 billion euro.

The Minister of Finance Evangeols Venizelos said that this is the last opportunity that is given to the Greek creditors to accept the "friendly" terms on the debt reduction. Otherwise he stated: "We are ready to activate the collective action clause CACs to an extreme." The answer of the legal giant Bingham to Venizelos’s ultimatum "now or never" was "No!" The world famous legal consultants refused to accept the conditions of the Greek PSI and advise their clients that have approximately 139 million euro invested in Greek government bonds maturing in 2013 not to take part in the voluntary rescue of the country from financial collapse.

Meanwhile, Greece put out to contract the next round of bonds with six-month maturity, which raised 1.14 billion euro to cover current expenses. The interest rate decreased slightly compared with the auction of the same type of bonds held last month, down to 4.8% from the previous 4.86%. Insurances on the Greek government bond CDS continue to grow. While the Greek government sends out positive signals for the success of the programme for reduction of the debt held by private investors, the markets are preparing for the worst case scenario. According to data of the agency Markit insurance on the Greek government bonds worth 10 million dollars costs 7.1 million dollars. The troubled situation around the Greek salvation made the Head of the Public Debt Management Agency Petros Christodoulou deny the rumours that the closing date for participation in the restructuring of debt has been changed to the 14th of March. "I confirm that the term for the execution of the PSI is the eighth of March". This was his reaction to the communication of the news agency IFR about the problems in luring private investors to participate in the reduction of the Greek public debt by 107 billion euro.

Tags: Economy Markets PSI crisis foreign debt government bonds face value Greece
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