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Greece set to unveil terms of crucial bond buy-back

By Lefteris Papadimas

ATHENS (Reuters) - Greece will unveil details of a bond buy-back crucial to efforts by foreign lenders to trim the country's ballooning debt, hoping the terms will draw enough investors and unblock vital aid.

Since plans for the buy-back were announced on Tuesday, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net 20 billion euros.

Under the plan, Greece aims to cut its overall indebtedness by spending 10 billion euros from its rescue package to buy back about 30 billion euros of bonds for less than it would have to pay if its creditors held them to maturity.

A senior government official said Athens would unveil the terms of the deal on Monday before a meeting of euro zone finance ministers, at which Greek minister Yannis Stournaras would brief his counterparts.

"There will be a debriefing by the Greek minister on the steps he will have taken by then," said a senior EU official. "On Monday you will see it all.

Euro zone officials said the bloc hoped Greece would be able to repurchase at least 40 billion euros of its own bonds.

The price that Athens will offer bondholders is likely to vary depending on the bond rather than be a uniform rate for all holders, a senior Greek finance official has told Reuters.

On the secondary market, Greek bonds eligible under the buy-back ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23, Reuters data showed.

Greece's lenders agreed this week that the bonds, which have a nominal value of 63 billion euros, would not be purchased for more than the closing price on that date. The offer goes in theory also to holders of about 4 billion euros of old Greek bonds, who refused to take part in a debt cut scheme in March.

A Reuters calculator on the buy-back shows that if the buy-back price was set at the Nov 23 closing prices, even a 50 percent participation rate would be enough for a successful deal - in this instance, Athens would have to spend just 8.7 billion euros to buy back debt worth 31.5 billion euros.

For Athens to spend 10 billion euros, it would have to buy back around 60 percent of the outstanding bonds. This could save Greece 39 billion euros gross on the face value of the bonds and the interest payments due on them.

"PATRIOTIC DUTY"

Athens has pressed its banks - which hold nearly 17 billion euros of the bonds - to take part in the deal, saying it was the "patriotic duty" of Greeks to ensure the buy-back is a success.

"The buy-back must succeed. It's our patriotic duty to succeed, it is important for the country's credibility," Stournaras said last week.

Despite fears that Greek banks - already battered by the country's deep economic crisis - would be forced to book losses from the buy-back there have been growing indications they are likely to participate.

Prime Minister Antonis Samaras said Greek banks would benefit from the voluntary debt buy-back - which is crucial to unlocking aid that will largely be used to recapitalize them - since they held Greek bonds at lower prices on their books.

"They won't lose any of their capital but will end up with more liquidity," he was quoted as saying in an interview with Sunday's Proto Thema newspaper.

The deal is seen as a golden opportunity for hedge funds which have bought the bonds at rock-bottom prices.

Athens must complete the buy-backs by December 13 to receive more than 30 billion euros in bailout payments.

Greek pension funds holding more than 8 billion euros of the bonds will not take part, Samaras said.

"The debt buy-back does not concern the pension funds," he said. "We wouldn't erase the debt even if we took the funds' bonds. These are seen as arrears of the state to itself."

(Additional reporting by Renee Maltezou and Jan Strupczewski in Brussels; Writing by Deepa Babington; Editing by Helen Massy-Beresford)

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