ATHENS, GREECE—Greece has cleared a major hurdle in its race to avoid bankruptcy by persuading the vast majority of its private creditors to sign up to the biggest national debt writedown in history, paving the way for a second massive bailout.
Following weeks of intense discussions, the Greek government said Friday that 83.5 per cent of private investors holding its government bonds were participating in a bond swap. Of the investors holding the €177 billion ($234 billion) in bonds governed by Greek law, 85.8 per cent joined.
“We have achieved an exceptional success ... and I believe everyone will soon realize that this is the only way to keep the country on its feet and give it a second historic chance that it needs,” Finance Minister Evangelos Venizelos told Parliament.
He said he would recommend the activation of legislation known as “collective action clauses” to force bondholders who refused to sign up into the swap. The issue was to be discussed at a Cabinet meeting Friday afternoon.
“A window of opportunity is opening” with the success of the deal to reduce the country’s €368 billion debt by €105 billion, or about 50 percentage points of gross domestic product, he said.
The investors will exchange their bonds with new ones worth 53.5 per cent less in face value and easier repayment terms for Greece. A total of €206 billion ($273 billion) of Greece’s debt is in private hands. The swap will effectively shift the bulk of the remaining debt into public hands — mainly eurozone countries contributing to Greece’s bailouts.
If the exchange had failed, Greece would have risked defaulting on its debts in two weeks, when it faced a large bond redemption. A successful bond swap is also a key condition for Greece to receive a €130 billion ($172 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.
Eurozone finance ministers said after a conference call on Friday that Greece has fulfilled the conditions to soon get approval for the bailout, most likely on Monday. The IMF has set a tentative date of March 15 to discuss the size of its participation in the bailout.
The ministers also released up to €35.5 billion ($47 billion) in bailout money to fund the debt swap. Investors exchanging bonds will receive up to €30 billion — or 15 per cent of the remaining money they are owed — as a sweetener for the deal and €5.5 billion for outstanding interest payments.
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