Greece Targets US Investors With $3B Of Diaspora Bonds
By Alkman Granitsas and Cynthia Lin
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The Greek government plans to sell up to $3 billion of so-called diaspora bonds to U.S. retail investors, according to a filing with the U.S. Securities and Exchange Commission on Tuesday.
According to the prospectus, the Hellenic Republic said it intends to issue debt securities from time to time, up to an aggregate amount of $3 billion. The Finance Ministry hopes to issue bonds with maturities of between three and 10 years at an interest rate below 5%, the Kathimerini newspaper's website reported, citing unnamed sources.
The Greek government said late last year it intended to offer diaspora bonds in 2011 to raise capital. Facing near default last year, the country had been unable to issue longer-dated debt since accepting official bailout support last April.
The proposed issuance comes a day after Moody's downgraded Greece's sovereign debt three notches deeper into noninvestment, or junk, grade territory, to B1 from Ba1. The downgrade came with a negative outlook assigned to the rating, reflecting the nation's heavy debt burden and potential solvency issues down the line. Explaining the cut, the ratings agency cited the challenges Greece faced in implementing fiscal reform to stabilize its debt levels, which were compounded by ongoing difficulties in collecting revenue.
Last May, Greece narrowly avoided default with the help of a EUR110 billion bailout from the European Union and International Monetary Fund, and has been struggling to convince investors that it will make good on its debt burden. Although the government has cut the budget deficit by a third to 9.6% of gross domestic product in 2010, Greece still faces a staggering public debt this year that exceeds 150% of gross domestic product.
Investor fears over a Greek government default or debt restructuring has kept interest rates on Greek government bonds near record-high levels. The yield on Greece's 10-year bond is currently around 12.9%.
Still, the diaspora bond offering seeks to overcome such technicalities and tap into the ideal buyer's sense of national pride. Such bonds are issued in hopes of accessing a unique channel into the U.S. market to reach Greek citizens living abroad and Americans of Greek descent.
While the debt issue comes at a peculiar time when the nation faces a murky credit situation at home, the concept of raising money from nationals beyond a country's borders isn't new. Israel has been a major user of this tool since 1951. According to the Development Corporation for Israel's website, a variety of notes are available as retail investments, enabling those living abroad to make checks out to the State of Israel. Current sales include 10-year Jubilee bonds at 4.36% and five-year Mazel Tov bonds sold at 2.2899%.
Research by a World Bank economist and Vanderbilt professor showed that diaspora bonds often fetch a "patriotic" discount in borrowing costs.
"Besides patriotism or the desire to do good in the investor's country of origin, such a discount can also be explained by the fact that diaspora investors may be more willing and able to take on sovereign risks of default in hard currency, as well as devaluation as they may have local currency liabilities and they may be able to influence the borrower's decision to service such debt," the report noted.
The Greek government has approved fees to be paid to the SEC in order to clear bond sales on U.S. soil, the newspaper reported, citing the Finance Ministry.
The preliminary SEC filing noted that proceeds will be used by the government for general funding purposes.
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Ritorno sui "Diaspora Bonds", dopo il post di ieri.
