Holders of Greek government bonds have until Thursday night to sign up to the deal, which aims to wipe more than €106 billion ($139 billion) off the country's overall debt by exchanging existing bonds for new ones with a face value reduced by 53.5 per cent, longer repayment deadlines and lower interest rates.
The success of the swap — called Private Sector Involvement, or PSI — depends on a high participation rate, of which there is no guarantee.
On Monday, a group representing private holders of Greek government bonds said a dozen banks, insurers and investment funds — including German insurer Allianz, French bank BNP Paribas, Germany's Commerzbank and Deutsche Bank — will participate in the swap.
But many more will need to sign up by Thursday for Greece to avoid default.
"There remains a long way to go given that these particular banks account for only 20 per cent of the available bonds covered in the PSI agreement," said Michael Hewson, markets analyst at CMC Markets. That would be equivalent to €40 billion ($52.6 billion) out of Greece's total €206 billion ($271 billion) privately-held debt.
Greece's debt chief met German banking officials in Frankfurt this week to persuade them to agree to the bond swap, the Public Debt Management Agency said Tuesday.
Greece has passed legislation known as collective action clauses, or CACs, which would allow it to force holdouts to participate if a majority of bondholders agree to sign up voluntarily.
Uncertainty over the ultimate success of the deal contributed to a sharp slide in financial markets on Tuesday, with many European stock indexes falling more than 3 per cent and the euro dropping 0.8 per cent. The deal is an integral part of the country's second package of international bailout loans, worth €130 billion ($171 billion).
Investors who participate would lose around 75 per cent of the value of their overall bond holdings. But without the deal they would face much bigger losses, not only on their Greek holdings but also on investments in other vulnerable eurozone countries as turmoil spreads across the region's financial markets.
If the swap deal does not go through, "the official sector will not finance Greece's economic program and Greece will need to restructure its debt ... on different terms that will not include co-financing, the delivery of European Financial Stability Fund notes, GDP-linked securities or the submission to English law," the agency said in an announcement.
Bondholders who do sign up will get sweeteners such as a payment up front and added interest linked to the growth of Greece's economy. If the PSI goes ahead, the actual swap is set for March 12, and the settlement date for those who hold Greek bonds issued under foreign law has been set for April 11.
The use of CACs, however, could trigger payouts of credit default swaps, essentially insurance against a default. The International Securities and Derivatives Association would determine whether the use of CACs would cause a "credit event" that would lead to the payout of credit default swaps.
Greece also warned that there would be no money available for bondholders who don't participate in the deal.
"Greece's economic program does not contemplate the availability of funds to make payments to private sector creditors that decline to participate in PSI," the agency said.
In Athens, several Greek pension funds who hold government bonds were holding meetings to decide on their participation.
Separately, Greece's privatization fund launched a tender for the exploitation of a large seaside plot on the western resort island of Corfu, part of a massive effort to raise funds through sale of state assets.
The Asset Development Fund said it was seeking to sell the "right of surface" for the 120-acre, forested property at Kassiopi for up to 100 years.
The tender is part of Greece's bid to raise €50 billion ($66 billion) through an open-ended program of privatizations and concession sales, half of which will involve real estate. The country has committed to raise €19 billion ($25 billion) of that sum by 2015.
The fund has already launched tenders this year for the sale of the DEPA gas company and commercial real estate in Athens.
Nicholas Paphitis in Athens contributedSuggest a correction