A demonstrator holds the Greek flag from the Parliament in Athens, June 15, 2011.
Credit: Reuters/Pascal RossignolBy Marius ZahariaLONDON | Tue July 5, 2011 1 pm EDT
London (Reuters) - remote permanent long-term investors of the Greek debt crisis want to holders of its bonds lost large enough to reduce the debt of the countries to sustainable levels before contemplating return.
The Greece expected always default at some point and most investors who dumped bonds over the past two years and which are crucial to the economy sick on his feet, the longest is delayed, it will be before to watch Greek assets again.
A likely second rescue plan--currently being negotiated tortuous - is considered only as a way to save time for banks in the euro area in the provision for possible losses and protect most important contamination block economies, while the reforms attached to the package will be difficult to implement with the deepening of public resentment.
"We would buy if the economy is able to reform itself and the banking sector is self-funded, but I do not think that will happen on a view of five years," said Russell Silberston, head of global rates of Investec Asset Management, which manages assets in fixed income securities, with a value of 31 billion worldwide.
"Our view is that they also need to default before that."
The Minister of finance Greek Evangelos Venizelos told Reuters Monday, he intended to return to the market of financing in 2014.
Most investors do not believe that would happen without a significant restructuring make sustainable the mountain of the Greece debt and remove it from the downward spiral of constant deficit cutting which will destroy any chance of economic recovery.
"For the Greece, starting on is the only solution," said Kommer van Trigt, a Fund of the Robeco Group liaison Manager, manage approximately 40 billion euros (57 billion dollars)
Silberston said that "first failure" is close that the proposal of the France for a voluntary transfer of Greek debt appeared to be gathering momentum. But that would not solve the problem of the creditworthiness of the Greece.
With a debt expected to reach 1.6 times its 2011 economic production, economists say that Greece would require a budget primary surplus by about 5 percent of gross domestic product, compared to 5 per cent primary deficit last year, just to stabilize its current debt.
On the assumption that the ratio of debt to the Greece GDP would peak at 166%, changing values securities calculations show a haircut of approximately 64% would be necessary to bring the ratio back to the 60% ceiling agreed in the Treaty of Maastricht of the EU.
The curve of Greek debt fully price in a cut hair by 50 per cent on average, according to UniCredit. But impose losses on holders of bonds prior to earn credibility may be in vain.
Silberston of Investec said outside a hair cut, he did not want to see several areas of primary surplus achieved in a sustainable manner and not through revenue from privatization - before you buy Greek debt.
"The big problem with a hair-cut major is that... you must always have a premium high for people to buy debt Greek after this date because if you look historically at cutting hair, they are generally not in a vacuum," said Jack Kelly, Director of investment obligations of a global state of Standard Life investmentswhich manages assets, $ 157 billion pounds ($250 billion).
GOOD MARKET IS NOT SUFFICIENT
After an immediate Greek failure was avoided with 12 billion euros of emergency loans and a new round of belt-tightening measures agreed in Athens, on part of its debt yields fell more than 200 basis points.
But more than 27% for paper, two years and 16% for the 10 years they are still high painful. Only short-term investors were behind the rally, which was also exacerbated by thin volumes.
Kelly said Standard Life, which has sold its remaining assets of Greek debt in June 2010, would only buy it if it reaches to new investment grade or in the framework of a common EU liaison, something Germany excluded.
Well noted above junk, the Portugal and the Ireland, other countries was out of the euro area, are also considered an equipment by investors of the long-term debt due to the risk that they will be dragged down with the Greek crisis.
But these countries have a chance to overthrow the things faster than the Greece. The best is the Ireland, whose exports are more competitive and more flexible labour markets.
"The numbers are a little better for the Portugal and the Ireland," said van Trigt Robeco group. "At this time we are not really differentiate between Greece, the Ireland and Portugal.". Go ahead, a country such as the Ireland has a better starting position. »
THE RIGHT TO AWARD
With the timing and magnitude of any haircut of Greek debt difficult to predict because the policy plays a more important role that mathematics, it is difficult to assess what price would attract investors in Greece.
A common comparison is debt Uruguay restructuring in 2003, when the price of its 2012 bond spent an estimated 40 to 60 cents of the dollar immediately after the event.
June 2020 binding Greece trades to 55 cents in the euro area.
"The price of less than 50, there will be value of eight or nine years obligations (Greeks) at some point," said Ciaran O'Hagan, strategist at Societe Generale. "But only when accounts, for example through the restructuring."
Which is only valid if the Greece to avoid a unilateral and disorderly default as the Argentina in 2002. He organized the swaps of substantial debt in 2005 and 2010 yet still excluded from debt markets.
Before any haircut could provide opportunities to buy on the view that holders of Greek bonds were too pessimistic about the extent of such a move in the price of the market. But it would not Greece, as these investors can bail shortly after and their expenses would be low.
"Those that would be incredibly hot money,", said Robert Talbut, investment officer head at London Royal Asset Management, which manages assets, a value of 40 billion pounds ($64 billion). He added that he would not take that risk. ($1 = 0,626 GBP) ($1 = 0.705 Euros)
(Editing by Ruth Pitchford, Mike Peacock)
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