Greece successfully closed a bond swap offer aimed at reducing its colossal debt pile and averting a chaotic default that would pitch the euro zone into a fresh crisis.

Officials said take-up had clearly surpassed the minimum threshold required for the deal to go through, despite early fears that it could fall apart and derail a broader rescue package that Athens desperately needs to stave off bankruptcy.

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.

Results from the offer were expected to be announced officially late last night (AEST) and Finance Minister Evangelos Venizelos was to hold a news conference before a call with euro zone finance ministers in the afternoon. One official, speaking on condition of anonymity to Reuters, said take-up of bonds regulated by Greek law, the most significant part of the overall debt, would surpass 85 per cent. Another official said the take-up had neared as high as 95 per cent. He said the figure referred to the voluntary take-up of the offer, however a third official said it assumed the activation of collective action clauses (CAC) that would impose the deal on all creditors holding Greek law bonds. The European Union and International Monetary Fund have made successful completion of the so-called private sector involvement (PSI) deal a pre-condition for final approval of the 130 billion euros bailout agreed last month.

Athens had said it would enforce the deal on all its bondholders, activating the collective action clauses on the 177 billion euros worth of bonds regulated under Greek law. That may trigger payouts on the credit default swaps (CDS) that some investors held on the bonds, an event which would have unknown consequences for the market.

The situation is potentially more complicated for some 18 billion euros in bonds regulated under international law, which have different conditions and which may be subject to legal challenges from hedge funds and other investors.


Despite the apparent success, the deal will not solve Greece’s deep-seated problems and at best it may buy time for a country facing its biggest economic crisis since World War II and crushed under debt equal to 160 per cent of its gross domestic product.

However, financial markets rose strongly in the run-up to the deadline with global stocks enjoying their best day in more than two months on Thursday as the threat of an immediate and uncontrolled default receded.

“This does not mean the debt situation in Greece is resolved, and this is not the last time we will be hearing about this. But it is a relief that it didn’t go the other way. It could have been a lot worse,” said Tim Ghriskey, chief investment officer at Solaris Group in New York.

Japan’s Nikkei climbed 1.5 per cent to a seven-month high on Friday while the Australian and New Zealand dollar rallied on news that Greece was cruising towards the finish line on the bond swap.

Athens must have the funds in place by March 20 when some 14.5 billion euros of bonds are due, which it cannot hope to repay alone.

Greece has staggered from deadline to deadline since the crisis broke two years ago and several of its international partners have expressed open doubts about whether its second major bailout in two years will be the last. Underlining the severe problems facing Greece after five years of deep recession – data on Thursday showed unemployment running at a record 21 per cent in December, twice the euro zone average, with 51 per cent of young people without a job.

There has been growing resentment among ordinary Greeks over the austerity medicine ordered by international creditors, which has compounded the pain from a slump which has seen the economy shrink by a fifth since 2008.

Source: Reuters