New Plan May Rescue Cyprus Stock Exchange From Doldrums

by Lorys Charalambous, Tax-News.com, Nicosia

23 August 2002

The Cyprus Stock Exchange's share price index soared to dizzy heights in 1999 before crashing to barely 10% of its peak level, ruining thousands of investors who had borrowed to join in the bonanza. Since then Parliament has sought both to apportion blame for the collapse, and has come up with countless abortive schemes to rescue the Exchange from its current, moribund state.

Now a new plan to create a Trust to take up the debts of investors is gathering bipartisan support and may stand a chance of being put into effect. Under the plan, a Trust would offer to assume all the investor debts created between January 1, 1999 and December 31, 2001, as well as the investor losses sustained in the same period, thus relieving thousands of investors who lost money after the CSE bubble burst. The Trust would issue bonds to the banks that offered loans for equity investments.

It's thought that the total of such debts and losses could amount to about CYP 1 bln, with the underlying assets worth now perhaps CYP 650 mln, and in that case 10-year bonds would be issued with a coupon of 3%. The government-guaranteed bonds would be listed on the stock exchange themselves. If the shortfall was greater, then the term of the bonds would be extended.

It's also suggested that the government would pass to the Trust a proportion of the fees it receives from the CSE, allowing it to cover interest payments, along with dividend income it receives from its investments.

It's thought that the banks are likely to support the plan, since it would allow them to maintain the debts on their balance sheets at face value. The Government believes that since it will only be guaranteeing the Trust's net liabilities, it will not have to put the total value of the bonds onto its books, something which might push its debt over the Maastricht guidelines. But it remains to be seen what the Central Bank and the Finance Ministry will say, not to mention Brussels.

Perhaps coincidentally, the CSE has had a good couple of weeks, reaching a high of 90 mid-week before falling back somewhat to just above the 30-day moving average.

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