11 de abril de 2014 / 16:11 / en 4 años

Greece takes small step on road to recovery

* New trade shows progress although risks remain

* Bond wobbles in secondary as weaker markets take their toll

By Sarka Halas

LONDON, April 11 (IFR) - Greece’s first bond issue since it inflicted painful losses on bondholders two years ago was hailed as the kick-start the country needs to drag itself out of the financial crisis and the latest sign that Europe has turned a corner on its crisis.

But on Friday the bond suffered in secondary as the wider market weakened leaving open the question of how successful its comeback trade really was.

After Ireland and Portugal, the sovereign was the final bailed-out country to make a return to the eurozone bond market, but unlike them, it faced the challenge of having to win over investors after its 2012 debt restructuring.

“This transaction is a game changer for Greece and puts the country in a totally different light with its creditors and the troika,” said Hakan Wohlin, head of global debt origination at Deutsche Bank, one of the banks on the deal. “This deal shows that Greece has market access, at sustainable rates and in size.”

He added that while it was helpful to have central bank liquidity, this was not the sole reason for Greece’s success.

“Investors really believe that Europe has turned a corner and a huge amount of structural reforms have taken place in Greece and in other countries.”

Despite pricing with a 4.95% yield, the 3bn five-year transaction via Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs International, HSBC, JP Morgan and Morgan Stanley attracted around 20bn of demand from 600 investors.

This is a huge turnaround for a country that had not sold an international bond issue in over four years and had to be rescued by Europe and the IMF and saw its 10-year bond yields hit over 30% at the peak of the crisis.

“One should not be surprised if some investors who participated in the debt exchange were in the book for this deal,” said Wohlin. “The PSI was a 200bn debt exchange and the debt buy back had 31bn participating.”

Market participants now expect Europe’s weakest economy to return to the market later this year, to fill remaining gaps in its yield curve. RBS analysts they expect at least two more forays in 2014 and issuance to hit 8bn from the previously expected 5bn.

Wohlin said the impact would go beyond the sovereign. “It should have a positive on impact on Greek banks in general and their balance sheets as they go into the SSM, AQR (Single Supervisory Mechanism, Asset Quality Review) and stress test,” he said.


While the transaction appeared to give Greece a much-needed boost, it still has a long road to recovery ahead of it.

Compared to the work Ireland and Portugal have done, Greece still looks like a laggard. The country is still rated deep in junk rating territory and not all market participants were able to explain the massive order book for a borrower rated nine notches below investment grade by Moody‘s, at Caa3, and B- by both Standard & Poor’s and Fitch.

“The next steps for Greece would be to decrease their external funding cost, optimize their liability structure, and focus on achieving growth and reform in the domestic economy,” said Colm D‘Rosario, senior portfolio manager, emerging markets, high yield at Pioneer Investments.

In a report published on Friday, Fitch said that while the trade showed progress, risks remained.

“The deal’s success does not guarantee that Greece will have made a sustainable return to market funding by the time the current programme ends later this year,” Fitch said.

“Market funding at around 5% is more expensive than the average annual cost of Troika funds of 2%-3%.”

Greece’s debt to GDP ratio also stands at around 175%. Typically, a borrower coming back to the market after a default would normally have the advantage of a much lower level of outstanding debt, Gary Jenkins, analyst at LNG Capital wrote.

How the deal trades in secondaries will also be key to underpinning Greece’s future market access. The bonds wobbled in the after market on Friday, on the back of weaker broader markets and were quoted at 5.10% to 5.15%.

“Five years on after we made the call, Greece remains in a perpetual default cycle of self-reinforcing weak growth and high debt dynamics, ” g+economics, an investment research firm said in a note on Friday.

“The Troika’s commitment to continued cash flow support may have helped the market to price and distribute Greece’s new issue but this is not a market happy to hold its credit risk.”

The last time Greece sold a bond in the capital markets was in early 2010, when it issued a five-year deal at 310bp over mid-swaps.

But just a few months later it embarked on the first of two bailout programmes worth 245bn. Investors in Greek bonds suffered a 53.5% notional haircut in February 2012, and this was followed by a bond buy-back at an average price of 33.5% of par in December 2012. (Reporting by Sarka Halas, Editing by Helene Durand, Alex Chambers)

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