Government, creditors to meet Monday on valuation - The Best from Greece

Governments and Greece's private-sector bondholders will meet Monday in Athens, marking the next step in trying to bridge the wide gulf between the two sides for working out a voluntary restructuring, senior sources close to the talks confirmed on Friday.

 

"The meeting is on Monday," a spokesperson for steering committee co-chair Jean Lemierre told Reuters. Lemierre, a former President of the European Bank for Reconstruction and Development, is the senior advisor to the chairman of French bank BNP Paribas.

 

A second source said the gathering of government officials, bankers and International Monetary Fund representatives will meet in the afternoon to try to work out how to restructure the 260 billion euros worth of Greek government debt in the private sector's hands.

 

The Private Creditor-Investor Committee on Greece is made up of 30 international banks and insurance companies. Only the 12 members of the steering committee will meet face to face.

 

On October 27, eurozone leaders reached a deal with private banks and insurers to accept a 50 percent loss on the notional value of outstanding Greek bonds in exchange for new instruments.

 

The sticking point, however, is the new bonds' net present value (NPV.L) calculation. NPV is a measure of the current worth of the bonds' future cash flows.

 

"What it breaks down to is Greece is seeking a 75 percent haircut, not figuring in just the original 50 percent off the face amount but when you wrap in the coupon, tenor and structure of the deal," said a banker with direct knowledge of the negotiations who asked not to be named due to the sensitive nature of the unresolved issues.

 

"What the creditors are looking for is 47.8, or a 52-plus percent haircut. On the surface that seems like a wide gulf, but I think there's enough on the table to bridge it and avoid the two sides walking away into a disorderly restructuring," the banker added.

 

The Institute for International Finance (IIF) kicked off the negotiations on the part of the banks. IIF managing director, Charles Dallara, is the other co-chair of the creditor committee.

 

Dallara estimates the committee representsholders of more than 70 percent of the Greek debt.

 

Athens appointed the law firm Cleary Gottlieb Steen and Hamilton as its international legal advisor on implementing the so-called private sector involvement in the debt swap and Lazard Freres as its financial advisor.

 

The banker also described the negotiations so far as "being edgy."

 

Neither Cleary nor Lazard was immediately available to comment.

 

Failure to reach an agreement on a voluntary writedown of the investment would have wide ramifications for Greece and the insurance policies written on its debt, known as credit default swaps. If they were triggered it would also impact efforts to resolve the broader European debt crisis overall.

 

On Friday, Europe divided in an historic rift over building a closer fiscal union to preserve the euro, with a large majority of countries, led by German and France, agreeing to forge ahead with a new treaty, while Britain refusing to join.

 

Among the proposals being discussed is to tie the Greek money owed to the European Financial Stability Facility to the creditors so that if there is a default on one there is a default on the other.

 

That would align the interests of both the private and official sector.

 

Last year, the IMF and European Union agreed with Athens a three-year, 110 billion euro bailout package to help Greece avoid bankruptcy. The IMF will be in Athens from December 12-16 to discuss economic policies.

 

The late October agreement with private creditors is part of the programme to reduce the Greek economy's debt to gross domestic product ratio to 120 percent by 2020.

 

"These are really just the opening elements," the banker said. (Reuters)