The process of the share capital increase (SCI) of the Greek core banks marked the introduction in Greece of an important financing instrument, namely the warrants.
Within the framework of Greek banks recapitalization, warrants have been issued by the Hellenic Financial Stability Fund (HFSF) and distributed for free to all investors participating in the SCIs. Each warrant is based on the share of each Bank recapitalizing and incorporates the right, but not the obligation, of its holder to buy a fixed number of underlying shares of the Bank held by the HFSF at a predetermined price (the warrant’s strike price) on specific dates (exercise dates), until a predetermined time in the future.
Normally, a warrant’s strike price is set above the market price of the underlying shares at the time of issue of the warrant. The holder speculates solely on the market price going over the strike price by a sufficient margin.
Therefore, a warrant is just like the derivative called “option”. However, its key difference is that, unlike an option, a warrant is issued directly by a company in order to raise money. When a warrant is exercised, the shares are not given by one investor to another, but directly from the company.
In light of the Greek banks SCI procedure, and given that warrants are transferable securities, a new trading category has been created in the Athens Exchange where warrants are traded separately from their underlying shares.
Attractions of warranties
Undoubtedly, warrants have multiple advantages. As indicatively mentioned, it is considered that the expenses related to the issue of warrants are very low. Also, issuing warrants boosts the image of companies as it reflects the confidence of investors in the company. Last, it is worth noting that the purchase and sale of warrants are not liable to transactions tax, as it applies in shares, because warrants are deemed as a derivative instrument for tax purposes.
It remains to be seen to what extent the business world in Greece will make use of this financing tool.