After landmark return in April, Greece prepares to tap bond markets again

The first bond issue on April 10 was a 3-billion-euro, 5-year note in a syndicated sale that was heavily oversubscribed. The yield was 4.95 percent. According to Greek daily Kathimerini, the government is now planning a 3-year bond issue with the aim of raising 2.5 – 3 billion euros by July 10. The proceeds may be used as a cushion for debt maturities amounting to 5.6 billion euros in August.

The indicative timetable is subject to the approval of the next sub-tranche of 1 billion euros by the upcoming Eurogroup on July 7. The release of the next instalment is expected to be approved as Greece has completed the six prior actions required.

The troika delegation is scheduled to return to Athens on July 9 and Greece’s goal is for the bond transaction to take place as early as possible to avoid any negative repercussions during the inspection by Greece’s lenders affecting investor interest or the yield.

The government aims to benefit from the current low interest rates as well as positive investor sentiment on the prospects of the Greek economy.

“We welcome the previous bond issuance, and we welcome the announced plans in that regard as well,” said International Monetary Fund spokesman Gerry Rice on June 19. “There’s still a long way to go before Greece can rely entirely on market financing, but these are important steps in that direction.”

The latest budget execution data showed that the budget balance outperformed targets by more than 500 million euros to May. In addition, revenues rebounded in May, beating the 5-month target by 142 million from a shortfall of 620 million to April.

Strong tourism is set to support the anticipated GDP rebound of 0.6 percent this year with 5-month international arrivals posting a 20.4 percent rise, while travel receipts surged by 27.8 percent to April. In addition, economic sentiment soared 4.6 points in June to 103.7 reaching its highest level since April 2008.

Following the Private Sector Involvement (PSI) in early 2012, the new Greek Government Bonds (GGBs) in issue have maturities starting from 2023, which means there is lack of short-term maturities. Bond issues with 3- to 7-year maturity would build up the yield curve. The first issue had a 5-year maturity and this is now being followed by a 3-year transaction, while the next will reportedly involve a 7-year bond.

A recent WSJ report quoting a Commerzbank strategist noted that “this scarcity value should continue lending support to GGBs with demand from high-yield investors outstripping supply.”

The same market source indicated that the yield of a 3-year bond issue could be below the 3-percent mark at 2.90 percent, still offering sweeteners of around 130 basis points (bps) over the respective Portugal bond.

An indication of the positive market sentiment is also evident in the sharp drop of T-Bill yields within 2014. Following a reduction by just 23 bps in 2013, the yield in the 6-month notes has nosedived by 200 bps so far in 2014 to 2.15 percent. Similarly, the yield in the 3-month T-Bills has dropped by 177 bps year to date to 2.13 percent.

The imminent bond issue follows senior unsecured bond issues conducted by the top-four Greek banks in the last four months for the first time over the past four years.

Piraeus Bank’s transaction was a 3-year note of 500 million euros with a coupon of 5 percent on March 18. One month later, National Bank issued a 5-year note of 750 million euros with a coupon of 4.375 percent.

Alpha Bank followed suit on June 12 by issuing a 3-year, 500-million-euro note with a 3.5 percent yield to maturity. Eurobank’s issue on June 19 was a 4-year 500-million note with an annual fixed coupon of 4.25 percent.

Strong investor interest for Greek assets was also evident in the successful equity raisings of 8.3 billion by the four Greek banks over the past 3 months.

Most importantly, all banks’ bond and equity transactions were oversubscribed and mostly covered by international institutional investors.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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