By Robin Wigglesworth, FT
To tender or not to tender, that is the question running through the minds of hedge fund managers contemplating whether to sign up for Greece’s buyback by Friday’s deadline.
Even a successful buyback will only chip away gently at Greece’s mountain of debt. But it may be sufficient to unlock the International Monetary Fund’s next aid payment for Athens and keep the painstakingly negotiated overall debt relief package from collapsing.
Whether the buyback will be successful is harder to predict. The acquiescence of Greek banks and pension funds can arguably be taken for granted. But to make the buyback a success Athens probably needs a healthy number of hedge funds to sign up as well.
To entice them, the buyback price was increased from the initially proposed level. This will allow hedge funds to lock in a healthy profit to show investors just before the year-end accounting period – an attractive proposition for money managers.
Yet it is not quite a straightforward choice. It could be better to decline to tender bonds in the buyback and benefit indirectly from the debt relief Greece will get.
If Athens manages to trim its debt level by the proposed 11 percentage points by 2020, the price of the remaining bonds is likely to rally. And where else can a return-hungry fund find a 10-year bond that yields almost 15 per cent annually?
But if too many bondholders decline to join the buyback, the promised debt relief is eroded or vanishes altogether. This is game theory to rack the brain of any hedge fund maths wizard.
Nonetheless, there is one compelling argument for why bondholders should take the eurozone’s money and run.
Greece’s debts will be towering even after a buyback, and the official sector is likely to be forced into forgiving some of its loans eventually. Yet paymaster Germany may well seek to wipe out private sector creditors in the process.
