The Greek government's deadline for the biggest sovereignrestructuring in history approached with a majority of investorssignaling their readiness to participate in the debt swap.

The euro and stocks gained before the offer's close at 10 p.m.in Athens today as Greek Prime Minister Lucas Papademos told hisCabinet ministers that Greece had made “an appropriate frameworkwith significant incentives” for bondholders.

“For this reason I look forward to the maximum possibleparticipation of the private sector,” Papademos said, according toan e-mailed transcript of his comments. Finance Minister EvangelosVenizelos told Parliament that “a historic process will becompleted tonight,” and the results announced tomorrow.

Holders of at least 60 percent of the Greek bonds eligible forthe deal, including Greece's largest banks, most of the country'spension funds and more than 30 European banks and insurersincluding BNP Paribas SA and Commerzbank AG, have agreed to theoffer so far. That brings the total to at least 125 billion euros($166 billion), based on data compiled by Bloomberg from companyreports and government statements.

Participation is running at more than 75 percent and may surpass80 percent, the state-run Athens News Agency reported, withoutsaying how it got the information.

“The swap will go through if the rate is over 75 percent,” DirkBecker, an analyst with Kepler Capital Markets in Frankfurt, saidby phone. “Greece pulling it off by the skin of their teeth willstill reassure the markets.”

With Greece again the focus of the euro-area debt crisis now inits third year, the goal of the exchange is to reduce the 206billion euros of privately held Greek debt by 53.5 percent.Together with a 130 billion-euro second Greek aid package, thewritedown is a key element in European leaders' efforts to turn thetide against the crisis that has roiled Europe, forcing Ireland andPortugal to follow Greece in requiring bailouts.

While Greece would prefer a voluntary deal, the government hassaid it will use so-called collective action clauses to forceholders of Greek-law bonds into the swap if the private sectorinvolvement falls short and it gets sufficient approval frominvestors to change the bonds' terms.

Under the rules of the exchange, investors holding at least 50percent of the eligible bonds must vote on the swap, and 66 percentof those must agree to amend the bonds to enable the government toimpose the collective action clauses, said Christoph Rieger,Commerzbank's head of fixed-income strategy.

Hurdles Cleared

“Adding up the commitments to participate in the Greek PSI, itis now clear that the CAC hurdles will very likely be cleared,”Reiger said.

The 17-nation euro strengthened the most in two weeks againstthe dollar before the deadline, gaining 0.9 percent to $1.3262 asof 7:29 p.m. in Berlin. European stocks rallied the most in amonth, with the Stoxx Europe 600 Index advancing 1.6 percent to264.16 at the close in London.

“The fact is the markets had a very long time to be prepared forthis,” Janet Henry, chief European economist at HSBC Holdings Plc,said in a Bloomberg Television interview. “There's a lot moreoptimism in markets relative to where we were at the end of lastyear.” She cited the “breathing space” provided by the EuropeanCentral Bank's liquidity offer for banks.

In Frankfurt, ECB President Mario Draghi said it would be“completely inappropriate” to comment on the Greek debt swap since“the operation is unfolding.”

The Greek government has said it wants participation above 90percent and is seeking a minimum level of 75 percent. Greeceexpects holders to accept the offer and is ready to force them ifnecessary, Venizelos said in an interview earlier this week.

Hans Humes, president of Greylock Capital Management, expectsholders of more than 80 percent of Greece's government bonds toaccede to the swap, he said in a Bloomberg Television interviewyesterday. Humes is a member of a committee of private bondholdersthat negotiated the deal with the government.

Niek Hoek, chief executive officer of Amsterdam-based DeltaLloyd NV, said today the insurer plans to take part in the swapdeal on condition that the CAC clause applies to all parties.

“We have indicated we will participate if everyone else does,”he told reporters on a call. “Our base case expectation is theclause will be declared applicable and that the debt will berestructured in that fashion.”

Banks, Insurers

Greece's six largest banks, cumulatively the biggest privateholders of the country's debt, plan to accept the offer, theFinance Ministry said March 6. Greek pension funds with about 17billion euros of bonds will also join, Venizelos said on Real FMRadio yesterday.

More than thirty banks and insurers that were on the privatecreditor-investor committee for Greece plan to accept the swap,according to an e-mailed statement from the Institute ofInternational Finance yesterday. Those investors hold an aggregate84 billion euros of bonds, said the Washington-based IIF, whichrepresents more than 450 financial firms globally.

Some investors are probably still evaluating Greece's offer,Charles Dallara, the IIF's managing director, told reporters in Riode Janeiro today. Investors should believe the Greek governmentwhen it says this is the final offer, he said. He reiterated thathe expects a high level of participation, without giving a specificnumber.

Investors who participate will get new bonds with a face valueof less than half the previous securities, longer maturities andreduced interest rates, leading to a net present value loss of morethan 70 percent. The new bonds do come with warrants that willprovide extra income in years when Greek economic growth exceedscertain thresholds.

The amount of the country's bonds issued under other than Greeklaw totals 29 billion euros, or 14 percent of the amount eligiblefor the swap, Frankfurt-based KfW said, citing the swap invitationmemorandum. Those bonds are governed by different rules andwouldn't be subject to the collective action clauses that wereretroactively added to the Greek-law securities.

“I do fully expect to be part of the collective action clause,”Patrick Armstrong, managing partner at Armstrong InvestmentManagers in London, said yesterday in a Bloomberg Televisioninterview. He said he wouldn't voluntarily join in the swap becauseof the “minuscule” chance his bond maturing March 20 will beredeemed at face value.

Compelling holdouts to take part will likely trigger insurancecontracts on the debt known as credit default swaps.

“We don't see the Greeks failing to get a deal because the riskfor everyone involved is just too high,” Tobias Basse, a crossmarket strategist at Norddeutsche Landesbank, said today in atelephone interview.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.