After a three-year hiatus, Greece to return to bond market

Bloomberg

Greece will return to the bond market after a three-year hiatus, banking on investor interest in its recovery story.
The country, which was the epicenter of the European sovereign crisis that began in 2009, is looking to sell five-year bonds, according to an Athens Stock Exchange filing. It is also inviting holders of 4.75 percent bonds due in 2019 to tender the notes for cash. The bonds are expected to be priced on Tuesday.
With the sale, the government of Prime Minister Alexis Tsipras is seeking to chalk out a path for an exit from the current bailout programme, which ends in August 2018, while also capping the country’s financing needs in 2019 — expected to be about 19 billion euros ($22.1 billion). After not being able to convince creditors to reduce its debt burden and being left out of the European Central Bank’s bond-purchase programme, Greece is testing the market.
A return to the bond market last week was held off partly due to a 325 billion-euro ceiling set by the International Monetary Fund on the amount of debt the country can hold. The issue has been addressed in the meantime and there is some scope for issuance of new debt, an official familiar with the discussions said. The official declined to elaborate further and asked not to be named, as the topic is sensitive.

‘Perfect’ Timing
It’s “perfect timing,” said Lutz Roehmeyer, who helps oversee 12 billion euros at Landesbank Berlin Investment GmbH. “It is after getting bailout money, after getting the go ahead for a debt reduction next year, after IMF said it is likely to join the bailout finally, after S&P
rating action and still before ECB ends QE and started raising rates.” Roehmeyer already holds Greek bonds and plans to take part in the
new issue.
The bond sale follows the successful conclusion of the second bailout review and the disbursement of the first part of the 8.5 billion-euro tranche by the European Stability Mechanism on July 10. The IMF agreed to a new $1.8 billion conditional loan for Greece on Thursday, with disbursement contingent on euro-zone countries providing debt relief.
S&P Global Ratings raised the country’s sovereign credit-rating outlook to positive on Friday, while affirming the long-term foreign currency debt rating at B-, or six levels below investment grade. The credit-rating arbiter increased its outlook from stable.

‘Clean Exit’
The yield on the 2019 note dropped 18 basis points to 3.3 percent at 5:40 p.m. in Athens
on Monday, its lowest since January 2010.
The 10-year bond yield rose two basis points to 5.28 percent.
“Having failed to achieve anything substantial on debt relief or having Greece admitted into the ECB’s asset purchase program, the objective of the Syriza government is now a ‘clean exit’ when the bailout expires next year,” Mujtaba Rahman, managing director of Eurasia, said. “This will be the first leg of that strategy – to test market appetite while simultaneously building cash buffers ahead of next year.”