Some 42% of a National Bank of Greece covered bond has been tendered by investors in a buyback, with participation in the liability management exercise by holders of NBG hybrid securities helping to generate an overall Eu302m of core tier one capital for the bank.

NBG launched the tender offer two weeks ago, offering to buy back for cash any and all of a Eu1.5bn 2016 covered bond, which is the only publicly outstanding Greek jumbo, as well as euro, dollar, and sterling denominated hybrid tier one securities. The buyback was for an aggregate nominal amount of Eu1.88bn equivalent, and closed on Friday.

The purchase price for the covered bonds was 70% of par value, and 45% of par value for the hybrid securities. Credit Suisse, Deutsche Bank, Merrill Lynch and Morgan Stanley were the dealers.

Of the Eu1.5bn of 2016 covered bonds up for repurchase, an aggregate nominal amount of Eu636.1m was accepted to be bought back, representing 42.6% of the outstanding bonds. That compares with a take-up ranging from 46.1% to 69.7% on behalf of holders of the hybrid securities.

A banker on the tender offer said it was launched to generate core tier one capital for NBG and strength the quality of its capital base ahead of EU implementation of Basel III and in accordance with a Bank of Greece guideline for the country’s banks to increase core tier one ratios following the Greek debt crisis and in light of the expected participation of NBG in a Private Sector Involvement (PSI) arrangement with private creditors of Greek government bonds.

“The transaction offered several important benefits to investors, including but not limited to a cash exit out of effectively illiquid instruments and a reasonable premium to current mid-market levels,” he added.

Another banker said that a core tier one increase of Eu300m was a good result for the tender offer given that there are few alternative ways in which a Greek bank could raise such an amount.

Richard Kemmish, head of covered bond origination at Credit Suisse, said that the level of participation by covered bond investors was not out of line with that for other liability management exercises involving covered bonds, although NBG’s was very different in that it is the first since 2007 to tender cash for covered bonds, the first non-extension structure and the first to offer a deep discount to par value.

He said that many investors could not participate in the tender offer because they are constrained by accounting rules, or because they believe in the covered bond product.

“The vast majority of those investors who could participate did so,” he said, adding that rumours that the Greek government is considering introducing collective action clauses into Greek government bonds may have made some investors nervous about the possibility of such intervention in covered bonds and therefore helped persuade them to participate in NBG’s tender offer. According to some media reports a Greek government spokesperson yesterday confirmed that the government is considering introducing CACs.

Kemmish added that it is disappointing that covered bonds held under the ECB’s covered bond purchase programmes cannot be submitted as part of a tender offer as they are bought on a buy-and-hold basis.

“It is a safe bet that some central banks owned NBG’s covered bond, but it is unclear if they were allowed to participate.

“It should be something that central banks can do to help banks.”