July 20, 2017 / 4:13 PM / a month ago

Greece explores market return after three years' exile under lenders' watch

A Greek flag flutters in front of the ancient Parthenon temple atop the Acropolis hill archaeological site in Athens, Greece, June 26, 2015.Marko Djurica/File Photo

ATHENS (Reuters) - Greece said on Thursday it will strive to ensure a seamless access to debt markets when its bailout program ends next year, as speculation grew that its first bond market foray in three years was imminent.

Greece's European creditors are keen for it to develop a strategy to gradually regain market access so that when the present financing facility, worth up to 86 billion euros, expires it will be able to stand on its own feet.

Athens has hired six banks to help arrange an issue, Thomson Reuters market news and data service IFR reported on Wednesday..

But a government spokesman was circumspect about the timing, caution echoed later by European Central Bank president Mario Draghi, who said any new issuance program should be part of broader financing plans.

"We are closely monitoring developments in bond markets... and when we consider the time is right we will take the first step toward the markets," spokesman Dimitris Tzanakopoulos told journalists.

Draghi said on Thursday that it was up to Greece to decide whether to tap the market again, but this should be part of wider plans..

"Issuance activity should be part of an overall strategy where you have the completion of the third (bailout) program, and also the return to the market should be in a lasting way," he told a Frankfurt news conference after the ECB held interest rates at record lows.

The International Monetary Fund, which has misgivings about the long-term sustainability of Greece's debt, was expected later on Thursday to discuss its participation in the present bailout, currently shouldered exclusively by European institutions.

The IMF has said it would join the bailout, offering a standby arrangement of less than $2 billion. But it wants further clarity from the European creditors about what debt relief they can offer Greece, which has a debt-to-GDP ratio of 180 percent.

European nations believe an incremental return to the markets would also assist Greece in building up a cash buffer in the months after the bailout expires in August 2018.

But there is concern about potential Greek backtracking that could lead to an extension of financial support and continued monitoring of Greece's reforms.

Tzanakopoulos said any market return would need to ensure Greece could fully return to markets when the bailout, its third since 2010, ends.

Tzanakopoulos said bond yields - which have been falling since the country cleared a bailout review on June 15 - were not the only factor.

"The decision of the government is related to ...a comprehensive strategy and preparation to ensure that in August 2018 we will have regained market access."

"That strategy will define the timing of any (market) debut," he said.

According to sources, Greece has been considering swapping a five-year bond issued in 2014 with a new five-year bond, and possibly raising a small amount over and above the same issue. A bond swap would not incrementally increase Greece's debt load.

One source said that Greece has mandated Bank of America Merrill Lynch, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs and HSBC for a five-year trade..

The source added that the deal could arrive as soon as next week, but the timing remained uncertain as the sovereign awaits a signoff by its official creditor.

With the exception of two bond issues in 2014, Athens has been absent from international bond markets since its debt crisis erupted in 2010.

Additional reporting by Francesco Canepa in Frankfurt; Writing by Michele Kambas; editing by John Stonestreet

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