Austria’s Fekter: “Investors chose most expensive Greek debt option”

The euro zone is considering changes to a deal done with private bondholders of Greek debt because most investors chose the option that is most expensive for governments, Austrian Finance Ministers Maria Fekter said on Tuesday.
Fekter said most Greek bondholders chose the first of four options proposed by the Institute of International Finance (IIF) for Greek debt restructuring — a par bond exchange into 30-year bonds. Under this option, the principal is fully collateralised by 30-year zero-coupon AAA-rated bonds.
The coupon on the par bond was set to be 4% during the first five years, 4.5% during the next five years, and 5% for years 11-30, according to documents presented by the IIF when the deal was struck on July 21.
The other three IIF options were a par bond offer involving rolling-over maturing Greek government bonds into 30-year instruments, a discount bond exchange into a 30-year instrument and a discount bond exchange into a 15-year instrument.
The IIF proposal was based on the assumption that investors would choose the four instruments in equal proportions, but Fekter said most investors chose the first one.
"With respect to the private sector, we are taking note that the predominant majority of private creditors are orienting on option 1 — by far the most expensive option, so we'll have to recalculate what all of this will cost and how we will deal with it," Fekter told a news conference.
"But that wasn't discussed today as the report (of the IMF, EU and ECB inspectors) isn't there yet. It's been moved to the technical level," Fekter said.
The IIF said all of the options were priced to produce a 21% net present value loss based on an assumed discount rate of 9%.
Based on a target participation rate of 90%, the private sector investors through this programme will contribute 54 bln euros from mid-2011 through mid-2014 and a total of 135 bln euros to the financing of Greece from mid-2011 to end-2020.