Greek Bond Sale Is Said to Be Delayed by IMF Debt Cap Rule

19/7/2017

By Viktoria Dendrinou  and Nikos Chrysoloras

Greece’s much anticipated return to bond markets this week has been held off partly due to a ceiling set by the International Monetary Fund on the amount of debt the country can hold, according to three officials familiar with the matter who asked not to be identified as the talks are confidential.

The debt cap is a technical hurdle unlikely to prevent the country from returning to the market later this year, the officials and investors said. The debt ceiling is included in a series of documents agreed on between Greek authorities and the Washington-based IMF that were prepared before a meeting of the Fund’s board Thursday to discuss a new credit line to Greece.

The cap is such, the officials say, that the country can’t issue any more debt until it repays some of what it owes, meaning it has to wait until at least July 20 when it will pay another 4 billion euros ($4.6 billion) on bonds held by the European Central Bank. One of the officials, however, said that even after Greece repaid the ECB, its overall stock of debt would remain too high to issue new bonds under IMF requirements.

The officials involved in the discussions expect the issue to be addressed quickly and that Greece will be able to access markets soon. A way around the debt ceiling could be for Greece to issue bonds without increasing its debt stock outright, using instead tools like swaps, which could improve its maturities profile without increasing the overall load.

A finance ministry spokesman said that the government does not comment as to when or how Greece will return to financial markets.

“They will find a solution to allow Greece to issue bonds later this year,” Carsten Hesse, a London-based economist at Berenberg, said in emailed comments. “In the end it’s in the interest of every official lender that Greece can tap the bond markets again, because this is how they will pay back the creditors money.”

Greece has been considering a foray to the market for the first time since 2014 since an agreement by euro-area finance ministers in June cleared the way for 8.5 billion euros in fresh bailout cash, ending months of speculation over whether Athens would meet large bond payments due in July.

Greek bonds rallied on the news of the deal, with yields on notes across maturities hitting successive multi-year lows. Yields on 2019 notes rose as much as 6 basis points to 3.5 percent on Wednesday in Athens. “Market reaction today shows that investors at least don’t expect the IMF to stop Greek plans by all means,” Daniel Lenz, who leads euro-zone market strategy at DZ Bank AG in Frankfurt, said in emailed comments.

Despite investor optimism, the IMF has insisted Greece’s 315-billion-euro debt -- the biggest in Europe as a percentage of gross domestic product -- needs a generous restructuring to become sustainable, even after euro area finance ministers outlined some possible measures to ease repayment terms. The Fund has said the disbursement of any further loans to the country will be contingent on Greece’s euro area creditors offering more clarity on the measures they will take to ease the country’s debt load.

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