Greece closes in on debt swap as investors agree to offer

March 8 (Bloomberg) -- Greece moved closer to sealing the biggest sovereign restructuring in history as investors indicated they’ll participate in the nation’s debt swap.

Holders of about 60% of the Greek bonds eligible for the deal, including Greece’s largest banks, most of the country’s pension funds and more than 30 European banks and insurers including BNP Paribas SA and Commerzbank AG, have agreed to the offer so far. That brings the total to about124 billion ($163 billion), based on data compiled by Bloomberg from company reports and government statement.

The euro and stocks gained on speculation Greece was on the verge of reaching its participation target by the deadline of 10 p.m. in Athens today. The goal of the exchange is to reduce the206 billion of privately held Greek debt by 53.5% and turn the tide against the debt crisis that has roiled Europe for more than two years.

“A historic process will be completed tonight,” Greek Finance Minister Evangelos Venizelos told Parliament in Athens today. “If all goes well, tomorrow we can announce that we are relieving Greeks of105 billion of debt.”

While Greece would prefer a voluntary deal, the government has said it will use collective action clauses to force holders of Greek-law bonds into the swap if the so-called private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms.

No Big Surprise

The swap “will go through” and markets won’t be jarred should a majority fall short of the targeted amount, Peter Bofinger, an economic adviser to the German government, said in an interview from Berlin today with Bloomberg Television.

“The markets are aware of the risk that a majority for voluntary restructuring is not available,” Bofinger said. “So I think the surprise won’t be too big if tonight when they realize the collective action clauses will have to be applied.”

Under the rules of the exchange, investors holding at least 50% of the eligible bonds must vote on the swap, and 66% of those must agree to amend the bonds to enable the government to impose the collective action clauses, said Christoph Rieger, Commerzbank’s head of fixed-income strategy.

“Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Reiger said.

The 17-nation euro rose for a second day against the dollar, gaining 0.65% to $1.3235 as of 4:06 p.m. in Berlin. The Stoxx Europe 600 Index gained 0.9%.

‘Breathing Space’

“The fact is the markets had a very long time to be prepared for this,” Janet Henry, chief European economist at HSBC Holdings Plc, said in a Bloomberg Television interview. “There’s a lot more optimism in markets relative to where we were at the end of last year.” She cited the “breathing space” provided by the European Central Bank’s liquidity offer for banks.

In Frankfurt, ECB President Mario Draghi said it would be “completely inappropriate” to comment on the Greek debt swap since “the operation is unfolding.”

The Greek government has said it wants participation above 90% and is seeking a minimum level of 75%, including with use of the collective action clauses. Greece expects holders to accept the offer and is ready to force them if necessary, Venizelos said in an interview earlier this week.

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