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Greece sweetens deal in first debt issue since bailout

Struggling Greece raised more money than expected Tuesday after sweetening the terms of its first sale of government debt since a last-minute EU-IMF bailout saved it from default just two months ago.

business Updated: Jul 13, 2010 21:38 IST

Struggling Greece raised more money than expected Tuesday after sweetening the terms of its first sale of government debt since a last-minute EU-IMF bailout saved it from default just two months ago.

Athens sold 1.625 billion euros ($2.04 billion) in six-month treasury bills at a rate of return of 4.65 per cent, the Greek debt management agency (PDMA) said. It had originally sought to raise 1.25 billion euros.

"The total bids reached 4.546 billion euros and the amount finally accepted was 1.625 billion euros," the agency said in a statement.

The rate offered was slightly higher than in April, when six-month bills sold for 4.55 per cent as Greece's debt crisis deepened, dragging down the euro and threatening the whole eurozone project.

An equivalent auction in January was done at 1.38 per cent.

Analysts said the sale had gone better than expected but Greece was by no means out of the woods, having to implement tough austerity measures to restore its strained public finances.

"On the face of it, today's (sale) ... provides some reassurance that market confidence may be gradually returning," Capital Economics analyst Ben May said in a note.

"But Greece is still a long way from being able to rely on the market to meet its entire financing needs," May added.

Tuesday's auction came two months after Greece was rescued from insolvency by a 110-billion-euro ($138 billion) loan package put together by the EU, the European Central Bank and the International Monetary Fund.

In return, Athens pledged to put its chaotic public finances in order with draconian austerity cuts. The measures have sparked protests in the recession-hit country but the EU on Monday said the reforms were on track.

"The adjustment ... is impressive and has outpaced our expectations," the head of eurozone finance ministers Jean-Claude Juncker said in Brussels.

He said that the results should enable Greece to continue drawing down the EU-IMF loan. The next installment is due in September, after a joint review by the EU, the ECB and the IMF in August.

Analyst Elsa Lignos of RBC Capital Markets said Tuesday's sale was positive.

"Even if demand was only less than half that at the last sale ... in April, the interest rate paid was below the five per cent level (of the EU-IMF rescue package,) meaning this went better than expected," Lignos said.

The Greek finance ministry on Monday said it had made huge progress in restoring the country's finances to health in the six months to June, cutting the public deficit by some 46 per cent, well ahead of target.

Analysts, however, had doubted that Greece would return to markets at this stage as uncertainty over its still-frail economy seemed likely to keep its borrowing costs at prohibitive levels.

The Greek finance minister, however, recently said the country's return to borrowing would be "no market test" and Athens should have no trouble attracting interest.

"The logic is that one should always remain on the market to have reference prices. Failure to roll over short-term obligations does not send a good signal," Finance Minister George Papaconstantinou told AFP in a June 30 interview.

He added that the renewal of short-term debt was included in the agreement Greece signed with the EU, the ECB and the IMF in return for the rescue loan.

Greek treasury bills worth 4.56 billion euros mature this month.

One-year and six-month bills for a combined 2.16 billion euros must be settled on July 16; three-month paper worth 2.4 billion euros falls due a week later, according to the debt management agency.

The country is labouring under a mountain of debt approaching 300 billion euros and its economy is trapped in recession.

In its previous debt issue on April 20, Greece raised 1.95 billion euros in 13-week treasury bills and attracted heavy demand but had to pay over double the previous equivalent interest rate.

Three days later, Prime Minister George Papandreou called for the EU-IMF bailout loan as the country threw in the towel, signalling that it could no longer afford to borrow at the exorbitant rates demanded on the open market.

First Published: Jul 13, 2010 21:35 IST