Everything is fine say whose agree with the new tax
regimes imposed to balance sovereign debts. However, those who disagree may
find buybacks policies as alternative solutions to satisfy expectations of long
term investors. So, are the buybacks appropriate means to ensure markets’ financial
stability, suitable to attract investors and acceptable choice for decision
makers?
The shares’ buyback policy may be advantageous for long
term investors compared to paid dividends if taxes on dividends are higher than
taxes on capital gains. The buyback policies may be favourable as well for the
postponement effect. Shareholders may keep shares for long term and pay taxes
on capital gains only once shares are profitably sold. These trends may sustain
equity markets as notices in respect with buyback policies usually lift share
prices. But will the buyback of debs has similar effect?
New programme to support Greece was discussed by the
Troika during last several weeks. According to the press release of Hellenic
Republic announced on 3 December, 2012, the bond holders were invited to
exchange Greek debt securities for up to 10 billion euro aggregate principal
amount of six-month notes issued by the European Financial Stability Facility. It
was reported by Reuters on 3 December, 2012 that the offered prices were higher
than Greek bonds eligible under the buyback closed at on 23 November, 2012. So,
is such buyback of Greece’s public debt a gift for investors?
The invitation to buyback Greece bonds followed
the Eurogoup Statement on Greece released on 27 November, 2012, which set considerations
regarding an updated programme of further actions between the Troika and Greece.
The goals of the IMF assistance programme till 2016 involve the reduction of
Greece debt-to-GDP ratio to 175% in 2016, 124% of GDP in 2020 and lower than
110% of GDP in 2022. It is expected that
graduate buyback of Greece’s public debt will return it to the market
financing. So, Greece was encouraged to
reduce debt in exchange of lower interest rates on the loans available from the
Greek Loan Facility, lower guarantee fees on the EFSF loans, extended maturities
of the bilateral and EFSF loans by 15 years, deferred interest payments of EFSF
loans by 10 years and transferred amounts from the national central banks of
the euro area Member States to Greece’s segregated account equivalent to the income
on the portfolio of the Securities Market Programme used to absorb liquidity. Moreover,
after the Member States’ approval of the next EFSF disbursement which amounts 43.7
billion euro, the 23.8 billion euro will be paid for banks recapitalisation in
December.
Buyback of Greece sovereign bonds is an attempt
to absorb risky assets from the markets. However, once favourable buyback conditions
are created for investors, what capital structure of decision makers’ balance
sheets remains? Only generators of constant revenues may afford such decisions.
