Greece raises €3bn in first bond sale for three years. Deal marks growing confidence in recovery but cannot hide investor ambivalence Read next fast. FT New Greek bond fifth most traded euro debt after deal an hour ago Greece has been broadly shut out of financial markets since 2010, when it took its first bailout from the International Monetary Fund Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 43 Print this page yesterday by: Kate Allen in London and Eleftheria Kourtali in Athens Greece returned to the sovereign debt market for the first time in three years on Thursday, using incentives to win over still-hesitant investors to a €3bn bond sale that marked a milestone in the country’s return to economic health.
Alexis Tsipras, the Greek prime minister who nearly led his country out of the eurozone two years ago, hailed the auction as a “significant step” towards exiting Athens’ third bailout in mid-2018. But about half the five-year bond’s buyers were owners of existing Greek debt maturing in 2019 who were enticed to swap their holdings by being paid an extra €40m by the Greek government to make the exchange, according to FT calculations.
The ambivalent messages sent by investors is symbolic of the Tsipras government’s mixed success in shaking off the damage done by its 2015 bailout brinkmanship that spooked investors and eurozone officials, ultimately forcing the closure of Greek banks for three weeks. FT View Greece stages a welcome return to capital markets A sale of sovereign bonds is a tentative step, but worth celebrating Mr Tsipras has won recent plaudits from Brussels for implementing a tough reform programme, allowing the eurozone to release much-needed €8.5bn in rescue aid last month. But the International Monetary Fund has continued to withhold its portion of the bailout amid doubts Athens can climb out of its debt hole, which remains the deepest of any EU country.
Demand of €6.5bn for the bond did allow Greece and its bankers to price the yield on the bond below the initial guidance of 4.875 per cent, at 4.625, which was also well below the yield on the five-year bond sold in 2014, which was 4.9 per cent. Bankers said they kept the deal size smaller than markets had anticipated in order to achieve a higher price, but Greek officials said they intended to return to the capital markets several times in the coming months. One investor who holds the existing 2019 bond but chose not to participate in the swap said while the “downside is capped” because of Greece’s improving economy and increased fiscal transparency, “we fail to see a lot of meaningful capital appreciation from these levels” of yield. He cited the “distinct possibility” that another stand-off among Greece’s creditors over debt relief could trigger renewed political uncertainty in the coming year.
The ECB has made debt relief a requirement for Greece to be included in its €60bn-a-month bond buying plan, a move that would significantly buoy the market for Greek sovereign bonds. Still, access to the public capital markets is the most important hurdle facing Athens as it attempts to exit the era of bailouts, which began more than seven years ago. Mr Tsipras, whose Syriza party has been far behind the opposition New Democracy in opinion polling for months, has attempted to use the prospect of bailout exit to rally support. Although the IMF remains sceptical of Mr Tsipras’ performance, eurozone officials have rallied around the far-left prime minister.
Pierre Moscovici, the European Commission’s economic chief travelled to Athens on Tuesday to lend his support to Mr Tsipras’ efforts and called it a “another positive signal of trust in the Greek economy”. “Let’s prepare the full return to markets in summer 2018!” Mr Moscovici wrote on Twitter. Investors noted that while the auction was a sign of increasing confidence in Athens among investors, the sale also underlined how record record-low interest rates across much of the developed world were forcing them to hunt for yield by turning to borrowers once seen as pariahs. Argentina was able to issue $2.75bn of 100-year bonds at a yield of about 8 per cent last month, despite its history of defaults. Recommended Greece’s comeback bond: Price guidance points to yield of 4.75% Greece prepares to price comeback bond Brussels recommends end to Greek excessive deficit regime The Greek deal took place in the final week before markets are expected to slow down for the summer, and just over a year before its rescue programme is due to expire in August 2018.
Portugal and Ireland both left a considerably longer gap between their first return to the capital markets and graduating from their bailout programmes, raising questions about whether Athens will be ready by next August. The sale will “will lower the refinancing need in 2019 and lowers the challenge for the Greek government when the current bailout programme ends,” said Kim Liu, senior fixed-income strategist at ABN Amro. Earlier this month, Greek central bank governor Yannis Stournaras said it was “a bit early” to tap the capital markets, urging the government instead to focus on “two or three emblematic privatisations”.
Nicholas Wall, a portfolio manager at Old Mutual Global Investors who holds long-dated Greek debt, said he had intended to buy into the new bond but its pricing proved too expensive for him. “We thought it would come in a little bit more cheaply as Greece was in search of a large order book,” Mr Wall said. “The [yield] pricing was below where we expected it to be so we withdrew.”