Confidence on Greek debt swap as deadline passes

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Stricken eurozone member Greece seems to have clinched a high-stakes debt swap as a deadline for bondholders to accept huge losses on their Greek holdings passed, opening the way for an urgent bailout.

Soon after the cut-off late Thursday, a government source said that participation had already passed 85 per cent, easily surpassing the minimum 75-per cent level sought by Athens for the deal to go through. The final participation will be 'around 90 per cent', the source said.

With the threshold met, Greece was now expected to press on towards unlocking a 130-billion-euro bailout from the European Union and IMF, a process that might include resorting to so-called collective action clauses Athens introduced to force holdouts to accept the deal.

By using the clauses, Greece would get even closer to the 95 per cent participation rate the EU and IMF said is necessary to reduce Greek debt to a sustainable level of 120 per cent of gross domestic product in 2020.

But the clauses could also trigger anti-default insurance contracts, known as credit default swaps, whose net value was estimated at 3.2 billion euros in February.

The Greek government would make an announcement on the swap at 0600 GMT on Friday, a finance ministry source said earlier.

And eurozone finance ministers were set to review the swap in a conference call later Friday, and weigh in particular the necessity to trigger the clauses or not.

Talk that the 75 per cent participation level was close to being reached trickled out throughout the day helping send stock markets sharply higher across the globe and giving leaders some confidence that a page was about to be turned.

Italian Prime Minister Mario Monti said over 60 per cent of private creditors had accepted the debt swap and the global bank association that led the initiative said a deal was close at hand.

"I'm optimistic that there's going to be an agreement in the next few hours," said Charles Dallara, managing director of the International Institute of Finance (IIF) and chief negotiator for the banks involved in the debt writedown.

The writedown is the biggest attempted so far, overshadowing Argentina's $82-billion default in 2002, the equivalent of 73 billion euros at the time.

It is designed to erase more than 100 billion euros ($132 billion) from Greece's near and midterm debt and replace it with new maturities.

The exercise is meant to make repayment of the debt, currently at over 350 billion euros, more sustainable in the immediate future, thereby giving the struggling Greek economy much needed breathing room.

"Tonight at midnight, a procedure of historic character reaches completion. An operation of unprecedented size and complexity to drastically cut Greek state debt," Finance Minister Evangelos Venizelos told parliament.

Officials would need two hours after the deadline to determine the level of participation, Greek news reports said.

Greek Prime Minister Lucas Papademos said he expected maximum participation as a take-up too low would ultimately mean an even greater danger of a disorderly default that the IIF warned could cost eurozone nations one trillion euros.

European stock markets posted strong gains on Thursday following rises across Asia, and Wall Street also rose on optimism that Greece's debt swap would be successful.

The euro was rangebound in Asia on Friday as investors waited for the formal announcement on a Greek debt swap and key US jobs data later in the day.

The euro bought $1.3268 and 108.46 yen in Tokyo morning trade, compared with $1.3274 and 108.28 yen late Thursday in New York, where the common currency jumped.

Directors from the International Monetary Fund have tentatively planned to meet to weigh a new loan for Greece on March 15, spokesman Gerry Rice said Thursday.

Greece and the IIF have warned that a disorderly default could occur as quickly as March 20, when Athens is due to reimburse 14.4 billion euros in debt.

The IIF report warned that if the debt swap deal failed, it could do serious damage to the eurozone and even the global economy. Greece's own stock exchange picked up 2.78 per cent in late afternoon trade.

"Global equity markets are rallying in front of the deadline for the private-sector involvement in the Greek debt swap plan, reflecting an expectation that the deal will get done and that a disorderly default will be avoided," said Briefing Research.

US stocks also finished higher, led by a 1.2 per cent gain in the Nasdaq buoyed by reports that Greece had achieved the minimum support needed to push its huge private-debt writeoff through.

At the closing bell the Dow Jones Industrial Average was up 69.78 points (0.54 per cent) to 12,907.11.

The broad-based S&P 500 added 13.27 (0.98 per cent) to 1,365.90, while the tech-rich Nasdaq Composite rose 34.73 points (1.18 per cent) to 2,970.42.