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Feb 22, 2012, 08.03 AM IST | Source: Reuters

Greece must seal debt swap by around March 10: PM

Greece must complete a swap of private holdings of its debt as part of a 130-billion-euro EU/IMF bailout package by around March 10 at the latest, Prime Minister Lucas Papademos said on Tuesday.

Greece must seal debt swap by around March 10: PM

Greece must complete a swap of private holdings of its debt as part of a 130-billion-euro EU/IMF bailout package by around March 10 at the latest, caretaker Prime Minister Lucas Papademos said on Tuesday.

Papademos made the statement as his government introduced into parliament a draft law that could if needed force private investors to swap their bonds for lower-value debt as part of the rescue package agreed earlier with eurozone states.

"We believe the decisions that were taken and the deal that was clinched significantly reduce the uncertainty over our country's financial support for the next three years," he said.

"We have a lot of work to do from now until the end of March," he added.

Completion of the transaction by the deadline specified by Papademos would provide Greece with much needed new funds. On March 20 it must make a 14.5-billion-euro debt repayment.

The swap will entail investors losing 53.5% of the face value of their bonds. If parliament passes the law, so-called Collective Action Clauses (CACs) will force all investors to accept the swap once a threshold of two-thirds participation in the transaction is attained, a government minister said.

"It's 66%," the minister told Reuters of the threshold on condition of anonymity.

The debt swap action is a vital part of a rescue plan aimed at cutting Greece's liabilities from 160% of gross domestic product to 120.5% by 2020, according to terms of a deal agreed at all-night talks in Brussels.

The success of the debt swap could also determine the date of Greece's next election. The conservative New Democratic party, which is seen pushing for a quick poll, said earlier it could agree to wait for an April 29 vote rather than April 8 if more time was needed to complete the transaction.

In real terms, the swap means investors will take an even higher loss of 74% on the value of their bonds. But the prospect of ending up with nothing at all if Greece is pushed into full default is seen convincing many to accept the swap.

Moreover many hedge funds do not expect to lose much from the swap, having piled into bonds while at the same time buying credit default swaps - kinds of insurance policy which are almost certain to be triggered if the CACs are used.

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