Did Greece overpay investors for its bond issue?

Greece returned to the capital markets this week with a €3bn bond issue, but its post-bailout debut involved a partial buyback of existing debt at above its nominal value – something that could be construed as paying a premium to investors.

With €1.57bn of outstanding debt due to mature in 2019 being bought back at 102.6 per cent of its nominal value, this amounts to a €40m cost for Greece — on the face of it, a transfer from the pockets of hard-pressed Greek taxpayers to those of faceless bondholders.

Until mid-June, GGB 4¾ % 04/17/2019 traded at below its face value — a fact that critics could argue makes the 2.6 per cent nominal premium a sting for Greek taxpayers.

Is this a scandal? No – and here’s why.

Firstly, in recent weeks the bond’s trading price had risen to above par – although admittedly it did not top the €102.6 which Greece offered to investors for each €100 of nominal bond (although it has since, briefly).

Greece’s pitch to bondholders was equivalent to a 15 (euro) cent premium to the price at which it was being offered for sale at the time. For context, the market buy/sell spread at the time was around 30 cents.

Companies often buy back debt in the high-yield market, and for a similar deal to Greece a corporation would commonly pay around 100 cents above the offer price, according to one banker familiar with this week’s new issue — so that’s a pretty slim additional amount for Greece to fork out, in relative terms.

Admittedly it’s historically been unusual for eurozone sovereigns to carry out syndicated debt buy-backs. Spain did a big one in 2015 and Cyprus recently did too, but in most cases issuers simply buy back their bonds in the secondary market. So the offer is worth noting. Greece wanted the debt exchange in order to reduce its refinancing needs in 2019, when it faces a series of major repayments.

So, here’s reason #2. By shifting €1.57bn of investors’ cash to the new five-year bond, which has a 2022…

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