Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the indebted nation’s government bonds, said three people with direct knowledge of the discussions. Lenders want 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5%, said the people, who declined to be identified because the negotiations are private.
IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120% by 2020, a key element of the October 27 agreement by European Union leaders, the people said.
Greece’s debt will balloon to almost twice the size of its economy next year without a write-off accord with investors, the IMF said on December 13. The IMF and EU leaders are trying to bring the country’s debt down to a sustainable evel.
As part of Greece’s 130 billion-euro second bailout, investors would take a 50% hit on the nominal value of 206 billion euros of privately owned debt. Exchanging bonds for securities with a 5% coupon would leave investors with a 65% loss in the net present value of their holdings of Greek government debt, the people said.Both sides have agreed that the new bonds should be governed by British law and that private bondholders should have the same seniority after the swap as the IMF and the European Financial Stability Facility, two of the people said.
(Source: Bloomerg)
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