Private investors near deal on Greek debt

Greece and its private investors are close to a deal that will significantly reduce the country's debt and pave the way for it to receive a much-needed 130 billion euro ($161.02 billion) bailout.

Negotiators for the investors announced the tentative agreement on Saturday and said it could become final next week.

Under the agreement, the investors would take a hit of more than 60 per cent on the 206 billion euros ($255.16 billion) of Greek debt they own.

Here's how it would work: private investors would receive new bonds with a face value of half that of the existing bonds.

The new bonds would have a longer maturity and pay an average interest rate of slightly less than four per cent (compared with an estimated five per cent on the existing bonds).

Without the deal, which would reduce Greece's debt load by at least 120 billion euros ($148.63 billion), the private investors' bonds are likely to become worthless. Many of these investors also hold debt from other eurozone countries, which could also lose value in the event of a Greek default.

The agreement taking shape is a key step before Greece can get a second 130 billion euro bailout from its European Union partners and the International Monetary Fund, although there are other issues involved before Greece can get that aid.

This would be Greece's second bailout. The EU and the IMF signed off on a 110 billion euro aid package for Greece in May 2010. Most of that money has already been disbursed.

On March 20 Greece faces a 14.5 billion euro ($17.96 billion) bond repayment, which it cannot afford without additional help.

Private investors hold roughly two-thirds of Greece's debt, which has reached an unsustainable level – nearly 200 per cent of the country's economic output.

By restructuring the debt held by private investors, Greece and its EU partners are hoping to bring that ratio closer to 120 per cent by the end of this decade.

AAP