A Mysterious Bid For Greek Bonds

Japonica’s offer puzzles investors and hasn’t moved the market | “This isn’t put together in a way to get a deal done”

Jesse Westbrook


After operating behind the scenes for two decades, Paul Kazarian is stepping into the spotlight again. Days after the June 3 announcement that his investment firm, Japonica Partners, was offering to buy as much as €2.9 billion ($3.8 billion) of Greek government debt, about 10 percent of all outstanding bonds, he sat on a bike in the gym at the Hotel Grande Bretagne in Athens, according to people who saw him. The lodging is favored by hedge fund managers and overseas investors scouring Europe’s worst economy for distressed assets. Kazarian, 57, wore a T-shirt plastered with the Japonica logo and slogans such as “Delta Force” and “Catalyst to Create Extraordinary Value.” He put an inch-wide spiral-bound presentation covered with the same logo on the bike next to his, near the gym entrance in full view of anyone walking in.

“Without saying anything about the substance of buying Greek bonds, such as whether it’s a good investment, you have to admit” Kazarian’s offer “made everyone look up and take notice,” says Mike Lederman, a former Japonica partner who’s now a managing partner of investment bank Spectrum Capital Group. “That kind of move is classic Kazarian.”

The Athens visit, Japonica’s initial June press release, and another on July 1 in which the firm said it wanted to expand its initial bid to include Greek debt with a face value of as much as €4 billion are part of Kazarian’s return to the public eye. The former Goldman Sachs Group banker last garnered attention in the late 1980s and early ’90s for deals including an attempted buyout of Borden, a failed $1.6 billion takeover of railroad company CNW, and a three-year stint running Sunbeam-Oster, an appliance maker he rescued from bankruptcy.

What hedge fund managers, investment bankers, and analysts can’t figure out is whether Providence-based Japonica has the money to buy the Greek bonds and if its bid is serious. The firm is offering less than the price the bonds actually trade at, has rebuffed some bondholders’ attempts to negotiate debt sales, and didn’t respond to at least one firm’s efforts to find out more about the offer, say fund managers and bankers interviewed by Bloomberg. “This isn’t put together in a way to get a deal done,” says Hans Humes, whose hedge fund, Greylock Capital Management, owns Greek government bonds.

Kazarian declined an interview request through a spokesman. In its initial statement, Japonica said it had a “long-term perspective on Greece” and that the firm wanted to align its investment interests with those of the country. “Paul has been working for almost the past two years throughout Europe,” says Japonica Finance Director Christopher Magarian, who is running the Greek bond offer. Japonica is in contact with more than 80 percent of the “large” holders of Greek government bonds eligible to participate in the tender, according to Magarian, who declined to discuss whether any have tendered their securities.

The offer hasn’t had “any market impact” on the price of Greek bonds, which fell in June and now trade at about 44¢ on the euro, says Dimitris Drakopoulos, an economist at Nomura Holdings in London. That suggests many investors don’t consider the bid credible, according to Humes, who says Japonica rebuffed his firm’s request for information on the offer.

Japonica, named after the street Kazarian grew up on in an Armenian community in Pawtucket, R.I., initially said it would pay a minimum of 45 percent of the bond’s principal amount in a tender offer that expired July 1. The day of the deadline, Japonica announced it would cut the minimum price to 40 percent of face value, while extending the tender a month.

Buying Greek bonds proved a winning trade last year for hedge funds Greylock, Daniel Loeb’s Third Point, and David Tepper’s Appaloosa Management, among others, according to investors. Greek 10-year bonds sold for as little as 13 percent of their face value in May 2012, two months after a restructuring cut by half the €206 billion of debt the nation owed to private investors. By the end of last year, the bonds traded at 48 percent of their principal amount, a surge triggered by Greece’s meeting its bond payments, a pledge by European Central Bank President Mario Draghi to protect the euro currency bloc, and a December government buyback of debt. Morgan Stanley analysts, saying the biggest gains have already occurred, no longer advise clients to buy the debt because the governing coalition may break up and falling bond prices in Portugal may spread to other southern European markets.

During the past 15 years, Japonica has made investments that didn’t require public disclosure and expects to do the same once it completes the auction for Greek government bonds, according to Magarian. While Kazarian’s low profile has raised questions about what he’s up to in Greece, Japonica has overcome doubts before. When he and Lederman first targeted Sunbeam’s predecessor, Allegheny International, in 1989, they weren’t taken seriously because they were young and no one believed that they could raise enough money to buy the company. “Having done things with him that seemed impossible at the time,” Lederman says, “it’s hard to count him out.”

The bottom line Japonica says it wants to buy Greek bonds with a face value of as much as €4 billion at a deep discount.


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