Greece is planning to appoint Rothschild to advise on its debts as the country attempts to end a long-running creditor stand-off and avert default.
Government officials hope to finalise the appointment before a gathering of eurozone finance ministers on February 20 that has been described as the last chance for Greece’s lenders to overcome their differences before European attention shifts to general elections in eurozone countries.
Unless Greece receives fresh funds it will not be able to make €7bn of debt payments due this July, including €2.1bn to private sector creditors.
Under the plan, Rothschild will advise the country on all areas connected to its debt, including negotiations with creditors, potential inclusion in the European Central Bank’s €80bn-a-month bond-buying programme and the resumption of Greek government bond sales, said two people with direct knowledge of the matter.
It is expected to be paid a bonus when Greece regains access to global debt markets, they said.
The appointment of Rothschild as sovereign debt adviser, which will require ministerial approval, will replace the Greek finance ministry’s arrangement with US investment bank Lazard, which guided the country through its original bailout in 2012. Lazard’s work on the country’s debt restructuring — at the time the largest in history — earned the bank as much as €25m in fees, according to the Greek government. Lazard is currently acting as financial adviser to the Greek energy ministry.
Sovereign debt advisory work is prestigious but delicate, says Mitu Gulati, a law professor at Duke University in the US who specialises in the field. Advising Greece on its debt burden is a very different undertaking now compared with at the height of the eurozone debt crisis.
“An adviser is not being hired to arrange another debt restructuring with private creditors, it is being hired to advise on official debt. It will be a difficult job,” says Mr Gulati. “There is always the risk that you can antagonise bilateral creditors when you bring financial advisers in and treat them like private creditors.”
Of the country’s €323bn of outstanding government debt, just €36bn is owned by private investors who hold Greek bonds, according to Greece’s Public Debt Management Agency. The rest is in the hands of sector creditors such as the International Monetary Fund and European institutions.
The IMF has clashed with European creditors over the next phase of support, with officials claiming Greece’s €86bn rescue programme will end unless the fund fully participates. The IMF insists Athens’ debt is unsustainable and must be restructured — something EU officials, particularly those in Berlin, are opposed to.
The IMF also argues that austerity demands placed on Greece are overly severe, including a requirement that Athens achieve a 3.5 per cent primary surplus target by 2018. The fund has also locked horns with Athens over calls for the country to adopt further belt-tightening measures.
Greece’s looming July debt payments and the stalled creditor negotiations have weighed on the country’s financial markets, pushing down prices for Greek bonds and stocks amid fears a resolution will prove elusive.
Prices for Greek bonds fell sharply last week — sending the yield on Greek bonds that mature in April 2019 close to 10 per cent — an eight-month high. On Monday, yields for the 2019 bond had fallen back to 8.6 per cent following reports on Friday that negotiators in Brussels were working to resolve creditor differences.
Greece’s Ministry of Finance and Rothschild declined to comment.
Additional reporting by Chloe Cornish and Jim Brunsden