PARIS (MNI) – The Greek government’s plan for a E30 billion buyback
of its private-sector debt is already running up against one major
constraint: Greek bond prices are rising above the level at which the
Eurogroup said the deal could take place.

In announcing its agreement on Greece early Tuesday, the Eurogroup
said the buyback price was expected to be “no higher” than at the market
close on November 23. That price, based on the average of the 20 bonds
in the so-called GGB-strip, was 28.1 cents on the euro.

In trading on Thursday, the GGB-strip was trading at nearly 30
cents on the euro, suggesting that the buyback price will have to rise
to the low or even the mid-30s.

“Without a higher price there is absolutely no incentive to
participate in this,” said one London-based trader who deals in Greek
debt.

A second looming problem for the buyback is that Greek banks, which
own E15 to E20 billion of the E63 billion in private debt, are wary of
participating, according to the daily Kathimerini. The paper reported
Thursday that bank executives planned to meet with Finance Minister
Yannis Stournaras to ask that they be exempt from the deal.

Shares of National Bank of Greece and other major Greek banks have
plunged since the Eurogroup accord on concerns that they will be forced
to sacrifice substantial future gains on their Greek debt holdings if
they are strong-armed by the government into participating in the
buyback.

Details of the buyback plan, including the price, could be
announced as soon as Monday. The completion of the deal, which is
expected to be managed by Deutsche Bank and Morgan Stanley, is a
precondition for formal approval on December 13 of E34.4 billion in aid
for Athens.

Gabriel Sterne, an economist at the London-based firm Exotix Ltd.,
said the buyback price might have to go as high as 35 cents on the euro
and that the Eurogroup was in a weak position to withdraw the deal if
the price turns out to be higher than expected.

“If they do withdraw the buyback, they would have to find
approximately E20 billion in debt reduction from elsewhere,” Sterne said
in a research note. Failure to reduce Greece’s debt sufficiently could
cause the International Monetary Fund to withdraw its support for the
accord, “which would be a terrible signal,” he said.

–Paris newsroom, +33142715540; jduffy@marketnews.com

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