Disbursement of bond profits hits a snag

The disbursement to Greece of 2.1 billion euros from the profits of the Eurosystem from Greek SMP and ANFA bonds has hit a stumbling block due to timetable changes and different interpretations of existing agreements.

The original planning had provided for the 2.1-billion-euro payment to Athens this month, under two conditions: that the second quarterly progress assessment of the Greek program by the country’s creditors would have been completed within the month of July, and that the government would have been successful in meeting the creditors’ requirements.

However the delay of the previous inspection by several months and the fact that the next formal mission of the troika – the representatives of the European Commission, the European Central Bank and the International Monetary Fund – is now scheduled for September have raised obstacles to the return of the profits from the Agreement on Net Financial Assets (ANFA) and the Securities Market Program (SMP).

This opens a gap in the country’s fiscal planning, as Athens had included these revenues in the July receipts, which are needed to cover part of next month’s major dues. That plan was fully compatible with the original planning of the troika visits, but as the situation now stands, the eurozone is refusing to hand out the 2.1 billion euros before the September assessment is completed.

Justified or not, this stance represents a big snag in Greece’s effort to cover its funding requirements. In August Greece will need to service obligations adding up to 6.7 billion euros, the bulk of which (3.9 billion) concerns bonds that are set to mature and are held by the European Central Bank.

Sources say that the issue was discussed during last Monday’s Euro Working Group meeting of senior eurozone finance ministry officials, but both Greek Finance Ministry officials and sources from the troika ascertain that the country is not going to default on its obligations and a way will be found to cover them.

Several solutions are under consideration. The first concerns the issue of a new Greek bond. Taking into account that the markets appear determined to take what is dubbed “the Greek risk” and invest in a new bond, the government is seriously examining the option.

After all, the Finance Ministry intends to proceed with a new bond issue regardless of state needs, as it wants to supply the market with new securities for technical purposes. The government would in any case wish to keep the channels with investors open following its successful return to the global bond markets in April.

Since last week there has been growing talk among investors about Greece being ready to proceed to a three-year bond issue in order to draw 3 billion euros, although the Finance Ministry would not confirm that, noting that no such decision has been made.

Another option would be an extraordinary auction of treasury bills. This solution has also been used in the past in a similar situation. This time the ministry is studying the possibility of issuing T-bills that will mature after 18 months in an effort to use the new paper as a credit check instrument, as at the moment the T-bills issued are of smaller duration (three-month and six-month issues) and are auctioned entirely for liquidity purposes.