By Nick Cawley
Silhouettes of sculptures are seen against the background of the 2,400-year-old temple of Ifestos, in Athens.
 
Associated Press
“Eh?”
In a nutshell, that was the market response to news Monday that a  new buyer in the Greek government bond market has appeared, looking for a hefty chunk of Greek government debt via the first-ever tender by a private investor for European government bonds.
According to a press release emailed in the European morning, U.S.-based Japonica Partners has announced a tender offer for up to €2.9 billion ($3.8 billion) in face value of bonds issued by Greece in 2012 in cash.
This represents just under 10% of the outstanding amount of Greek debt— a fair chunk.
So why the head-scratching?
For one thing, people who know this market well have never encountered this firm before. According to the company’s website, Japonica partners is an entrepreneurial investment firm that makes concentrated investments in underperforming global special situations. But it’s not a name that trips off traders’ tongues, it’s unclear whether it has those kinds of resources available, and this is not a typical way to build up a position in government debt.
“This is a new player in the market,” said one trader, “we are struggling to interpret their actions.”
A spokesperson for the company, who assured The Wall Street Journal that the tender offer is genuine, said the firm’s proposal “is an effective method to purchase institutional blocks of these bonds in an orderly and price-efficient manner.” Japonica was not immediately available for comment.
According to the announcement, the minimum price at tender has been set at 45% of face value, a 26.5% premium to their average price in the December 2012 Greece government bond buyback, but well below the prevailing market rate, which is between 48% and 62% of face value.
The reaction to this announcement in the secondary bond market has been relatively limited, with prices of Greek debt barely changed.
Quite who would sell up for 45% is anyone’s guess. The Greek government proved itself capable of encouraging bondholders to make a move like that back in the debt restructuring last year, but an unknown market player may struggle. According to Japonica’s statement, the buyback invitation has not been authorized by the Greek government, and Japonica has no link to the government.
Still, 45% is a floor, so it may well rise. Further details are expected to be issued later this week, according to Japonica’s statement.
There are also some doubts over Japonica’s purchase strategy. By publicly announcing its intention to buy a large slice of Greek debt, Japonica risks sparking a rally in existing Greek government bonds, something even the Greek government experienced when it bought back bonds from private investors. Investors in other thinly-traded markets such as Ireland and Portugal have also slowly built positions without advertising their intentions in advance.
According to Japonica’s statement, this is the first time that a private investor has issued a tender for European government bonds. The invitation provides flexibility by enabling the buyer to make immediate purchases and by giving investors a right to withdraw prior to acceptance or the tender deadline. The expected tender deadline is 5:00pm Central European Time on 1 July 2013, unless otherwise revised in accordance with the Tender Offer Memorandum.
Stay tuned.