Municipality workers take part in a rally against state sector layoffs demanded by the country's international lenders, in Athens December 3, 2012. Greece said on Monday it would buy back bonds through a Dutch auction as part of efforts to cut its ballooning debt, allowing it to assess the level of demand before setting a final price for the deal. REUTERS/John Kolesidis (GREECE - Tags: CIVIL UNREST POLITICS BUSINESS EMPLOYMENT)

George Georgiopoulos and Karolina Tagaris Athens

Greece said yesterday that it would spend E10 billion (R112.3bn) to buy back bonds in a bid to reduce its ballooning debt and unfreeze long-delayed aid, setting a price range above market expectations to ensure sufficient investor interest.

The bond buy-back is central to the efforts of Greece’s foreign lenders to put the near-bankrupt country’s debt back on a sustainable footing, and its success is essential to unlocking funding Athens needs to avoid running out of cash.

There have been questions about whether it will tempt enough bondholders to cut Greek debt by a net E20bn, the target set by euro zone finance ministers and the International Monetary Fund. The buy-back plan announced yesterday appeared designed to quell those concerns.

“It indicates they really want the swap to succeed,” said Ricardo Barbieri, a strategist at Mizuho, on the pricing. “Some investors might be tempted to participate in the swap because of the ability to simplify their position, should they wish to maintain exposure to Greece, otherwise a chance to exit their positions totally at a level that is better than Friday’s close.”

The buy-back will be conducted through a modified Dutch auction that introduces an element of competition among investors and set a price range above Friday’s close.

The range set varied from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent, depending on the bond maturities of the 20 series of outstanding bonds.

It featured a spread of 2 percentage points between the highest and lowest price offered on each bond.

The prices were well above the levels Greek bonds eligible under the buy-back closed at on November 23, even though Greece’s lenders said last week that they did not expect the bonds to be purchased for more than that day’s closing price.

The bonds, with a nominal value of E63bn, closed at between 25.15 and 34.41 cents in the euro on that date.

That price range had been rendered irrelevant after Greek bond prices rose subsequently in the secondary market, forcing Athens to offer a higher range to ensure sufficient interest, a Greek finance ministry official said.

Athens said it would not spend more than E10bn on the buy-back. Investors must declare their interest by Friday and the expected settlement date is December 17. Greek government bond prices rallied sharply on the news, with bond prices rising across the strip.

In a Dutch auction, if a bondholder tries to get a price close to the upper limit there is a risk he or she may be left out if the buy-back amount is filled at lower prices. There will be one settlement price for each series of bonds.

Euro zone officials said the bloc hoped Greece would be able to repurchase at least E40bn of its own bonds.

Athens unveiled the structure of the buy-back before a meeting of euro zone finance ministers, at which Greek Finance Minister Yannis Stournaras was to brief his counterparts. – Reuters