China may help fund Greek bond buybacks

China could provide loans to Greece to fund government bond buybacks in the secondary market to help cut the country's debt burden, a Greek finance ministry official said on Friday, but analysts were sceptical. While talks with private creditors on a debt swap continue for a second day, analysts said more money to fund bond buybacks could help Greece shrink its debt mountain but questioned whether China would lend more cheaply than the eurozone.
China has made a major investment in Greece's main port in Piraeus and offered to buy government paper when Athens resumes issuance based on comments by its Premier Wen Jiabao, during a visit to Athens last year. "There are signs that China is interested in taking part in the new funding scheme for Greece," said the finance ministry official who declined to be named.
The official did not elaborate but referred to a meeting Greek Finance Minister Evangelos Venizelos had with China's IMF representative in Washington earlier this week. The Chinese government faces domestic political pressure to invest the country's foreign reserves conservatively after China incurred losses on overseas financial investments during the global credit crisis.
Noise that China could step in and help cover Greece's funding needs is not new. Scenarios that also included other saviours, such as the Arab sovereign wealth funds the Greeks have been courting, did the rounds last year as the debt crisis escalated but so far they have not shown up.
"Sounds more like wishful thinking, unless there is some side-deal cooking. Why would the Chinese want to lend money for buybacks when Greece's eurozone partners will offer funds at 3.5 percent? Would they do it at a lower rate?" said an Athens-based analyst who did not want to be named. "Why would China be more optimistic than bankers who already have lent to Greece and who now want 9 percent to take part in the debt restructuring?" the analyst said.
Greece secured a second bailout at an emergency summit of leaders of the 17-nation eurozone last week, with 109 billion euros ($157 billion) of government money plus a contribution by private sector bondholders that may total as much as 50 billion euros by mid-2014. In addition to the private sector's involvement, the summit decided to help Greece to cut its debt mountain through a bond buyback programme funded by the European Financial Stability Facility (EFSF) rescue mechanism.