By Dimitris Kontogiannis
Greece is likely to tap international markets with a 7-year bond next week, according to informed sources, in a bid to build a significant capital buffer to help support market funding after the expected end of the third bailout program in August 2018.
Greece is likely to aim for a 3.0 billion issue, depending on market conditions, they said. The bond can be priced to yield 3.0 to 3.50 percent to maturity according to analysts. Five international banks have received the mandate to sell the issue, namely Barclays, BNP Paribas, Citigroup, JP Morgan and Nomura.
The country counts on strong appetite for yields globally along with an improving economy, a recent upgrade by S&P to “B” with positive outlook from “B-” and the outperformance of fiscal targets for three consecutive years.
It will be the second time the country will attempt to raise money from the market since last July when it issued a 5-year bond.
Greece put aside about 1.4 billion euro from the sale of the 5-year bond to start building the cash buffer with the European creditors committing to an additional amount of about 10 billion euro if the country honors its commitments and graduates from the rescue program in the summer.
Already, the finance ministers of the Eurozone have given the green light to the ESM (European Stability Mechanism) to disburse 1.9 billion euro to Greece to supplement the cash buffer on the condition Greece completes the pending prior actions linked to the third review of the program. This is expected to take place in February.
In addition to the 5-year bond last July, the Hellenic Republic, as Greece is known in international markets, successfully completed the exchange of 20 step-up coupon PSI bonds with maturities ranging from 2023 to 2042 into bonds with fixed coupon 2023, 2028, 2033, 2037 and 2042 maturities.
The Greek authorities have communicated to the market that they aim for three new bond issues in the run-up to the anticipated end of the bailout program in August 2018.
They hope to raise up to 9.0 billion euro from the three issues, including the 7-year security.
Building a capital buffer that will cover the country’s financing needs, at least over the 18-year period after August 2019, is critical to the government’s plan for a so called “clean” exit from the program era.
Greece sought financing from the EU and IMF in May 2010 to avoid an outright disorderly default.
It is estimated the cash buffer will have to amount to 18 billion euro at the minimum for this period in order to earn investors’ confidence and be able to borrow from the markets at reasonable interest rates.