Greece is considering appointing Rothschild to advise on its debts as the country tries to end a long standing impasse with creditors and avoid default.
Government officials hope to finalize the appointment ahead of a meeting of eurozone finance ministers on February 20 which has been described as the last chance for Greek lenders to overcome their differences before European attention turns to the general election in the countries of the euro zone.
Unless Greece receives fresh funds, it will not be able to make 7 billion euros in debt repayment due in July, including 2.1 billion euros to private sector creditors.
As part of the plan, Rothschild will advise the country on all matters related to its debt, including negotiations with creditors, the potential inclusion in the € 80 billion per month bond purchase program of the European Central Bank and the resumption of sales of Greek government bonds, said two people with first-hand knowledge of the matter.
She is expected to receive a bonus when Greece regains access to global debt markets, they said.
Rothschild’s appointment as sovereign debt adviser, which will require ministerial approval, will replace the Greek finance ministry’s deal with US investment bank Lazard, which guided the country in its initial bailout in 2012. Lazard’s work on restructuring the country’s debt – at the time the largest in history – netted the bank up to € 25 million in fees, according to the Greek government. Lazard is currently acting as financial advisor to the Greek Ministry of Energy.
Sovereign debt advisory work is prestigious but delicate, explains Mitu Gulati, a law professor at Duke University in the United States who specializes in the field. Advising Greece on the weight of its debt is a very different undertaking today from what it was at the height of the debt crisis in the euro area.
“An adviser is not hired to organize another debt restructuring with private creditors, he is hired to advise on public debt. It will be hard work, ”says Gulati. “There is always the risk that you can turn your back on bilateral creditors when you bring in financial advisers and treat them like private creditors. “
Of the country’s 323 billion euros in outstanding public debt, only 36 billion euros belong to private investors who hold Greek bonds, according to the Greek Public Debt Management Agency. The rest is in the hands of sectoral creditors such as the International Monetary Fund and European institutions.
The IMF has clashed with European creditors in the next round of support, with officials saying Greece’s € 86 billion bailout program will end unless the fund fully participates in it. The IMF insists that Athens’ debt is unsustainable and must be restructured – something EU officials, especially those in Berlin, oppose.
The IMF also argues that the austerity demands on Greece are too severe, including the requirement that Athens meet a primary surplus target of 3.5% by 2018..
Greece’s looming debt payments in July and stalled negotiations with creditors weighed on the country’s financial markets, pushing down the prices of Greek bonds and stocks amid fears that a resolution would emerge. turns out elusive.
Greek bond prices fell sharply last week – pushing the yield on Greek bonds maturing in April 2019 to almost 10% – an eight-month high. On Monday, 2019 bond yields fell back to 8.6% following reports on Friday that Brussels negotiators were working to resolve disputes between creditors.
The Greek Finance Ministry and Rothschild declined to comment.
Additional reporting by Chloe Cornish and Jim Brunsden