Greek debt: worth little or nothing?

December 12, 2011

If Greece leaves the euro, what will its debt be worth? Maybe 50 percent of face value, maybe 20 percent, or maybe even nothing.

No one much admits to owning Greek debt these days, and the EU summit has done little to make holding it seem like a good idea.

Latest proposals are for private investors to take a 50 percent haircut on any Greek debt they own, but even that is looking a little too good to be true.

Greek 10-year debt yields have risen further since the weekend, with prices down at a paltry 21 cents on the euro, discounting for a near-80 percent haircut.

Greece hopes to wrap up negotiations on a voluntary debt restructuring by the end of January, finance minister Evangelos Venizelos said this afternoon, but investors are sceptical that the restructuring deal will remain as good as it appears just now.

Meanwhile, there is also the issue of what happens to the Greek debt you own (if you admit to owning any) , if Greece leaves the euro.

Lawyers have been busy helping investors to work out the law under which any of their euro-denominated instruments are constructed, in case of any break-up of the euro.

For Greece, according to Martin Wainwright, a partner at law firm Eversheds, the bond will likely have been issued under Greek law and a return to the drachma could mean no money being paid back to bondholders at all:

As part of the legislative changes, a bond issued by Greece is almost bound to be re-denominated. ¬†Greece might just cancel it…under national law, the sovereign generally has an immunity.

Sovereign immunity prevents bondholders from seeking redress if they get no money paid back on their bond. But, as Wainright says:

You probably would not have thought about that when you bought the bond.




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