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.
