With its e2.5 billion 2010 benchmark international bond launched in February, Greece has, in capital market terms, established itself as a de facto member of the eurozone. The launch price of 53 basis points over Bunds was the lowest cost of borrowing for Greece ever on such a deal, and marked a substantial reduction from the spread levels on previous deals in the high 50s.
That the new bonds found eager buyers at 10bp over Euribor, the equivalent of 53bp over Bunds at launch time, was nothing short of impressive, says Amir Shariat, head of debt capital markets, Greece, at Deutsche Bank. “This was just 20 to 25 basis points above the largest Emu benchmarks provided by Italy.”
The issue, which was jointly arranged by Deutsche Bank, Credit Suisse First Boston, Morgan Stanley Dean Witter and the National Bank of Greece in February 2000, has also performed well in a generally volatile secondary market, trading at Euribor Xat three months after launch. “Considering that most other European countries have widened over the last six months versus the German Bund, the fact that Greece tightened to Euribor Xat is a great achievement, and underlines the credit strength of Greece,” says Shariat.
John ZaWriou, head of European coverage at CSFB, adds that this was probably the best-placed deal to come from the Hellenic Republic.
Not that it would have been a problem to sell Greek debt – spreads have been on a downward trend ever since its Wrst e2 billion blow-out issue of March 1998. But the 2010 issue, being fungible with new drachma domestic debt, cleverly allows Greece to bring foreign investors into the domestic government bond market ahead of its entry into Emu and ahead of its own auctioning plans.
Greece has clearly drawn on the lessons learnt by other sovereign issuers. Fungibility is an extra trump card in the convergence game, as Austria, Italy and Spain have shown in the run-up to the launch of the euro. It means that, in the event of Greece joining the third stage of Emu, an identically structured drachma government bond line will be redenominated in euros, and add overall liquidity to the issue.
When the Eurobond and the domestic bond merge on January 1 2001, they will create an issue of a combined size of at least e5 billion – the minimum size for EuroMTS eligibility. The Greek Debt Management Agency auctioned the Wrst Dr360 billion (e1.1 billion) tranche of the parallel issue on April 18 2000. Its general director, Christoforos Sardelis, says that more auctions are planned in June, August, October and December, and that the issue’s Wnal size might be as high as e7 billion.
Once its bonds are traded on EuroMTS, the electronic trading platform for European government debt, Greece’s debt managers will be able to use the market feedback to tailor future borrowings and to access the 250 European institutions that use the system.
The potential boost in liquidity also attracted a large number of Wrst-time buyers. The bond’s main attraction lay in the fact that Greece is the lowest-rated EU country, and was – at launch time – one of the few zero-risk weighted countries whose bonds still traded above Euribor. “The issue is oVering good yield to investors and is their last chance to buy into Greece’s convergence story,” says Sardelis.
As well as adopting the pre-Emu borrowing tactics of other European sovereign debt management agencies, Greece showed itself right up to date with the latest fads in debt primary markets. By distributing the deal electronically, momentum was further improved. Deutsche received e-orders well in excess of e300 million out of its allotment of e565 million.
The total demand for the issue was so high that the planned e2 billion deal could have easily been enlarged to e5 billion. But borrowers that stretch too far in response to over-inXated order books can sometimes pay a heavy price if bonds lose support in the secondary markets. The deal was Wnally increased by only e500 million. “Greece has reacted very responsibly,” says CSFB’s ZaWriou. “And by not tightening the price too far, the issue kept its benchmark status and attracted investors that have not bought Greece before. There was particular demand from Scandinavian, Swiss and Dutch institutional investors.”
“The issue was after all a strategic deal,” explains Sardelis. “The driving force behind this issue was a repricing of the Greek curve, so that Greece would be established as an Emu country well in advance of a formal decision. We particularly targeted new accounts and aimed for a broadly distributed investor base, as we wanted to prevent a situation whereby domestic investors will move out of the market faster than outsiders come in.”
