Final Word from Thursday, February 23, 2017



Corporate finance is a highly technical issue, and Andrej Babiš uses this to his huge advantage. When he writes didactically to Bohuslav Sobotka that a bond is similar to a loan, that loans are a regular instrument used in business, and that it is not uncommon for owners to provide loans to their companies, he's implying that it's normal for a company to issue bonds that are bought only by its owner. This form of false logic is called a syllogism. Issuing bonds to a 100% owner makes little sense when a regular loan can be extended, or when the owner's equity can be raised. Unless, of course, there is a tax advantage. Not only does Babiš deny that taxes were the reason for the bond, but he also told HN in early 2011 that he didn't like the bond rates at the time. CPI Hotels had just issued a 3-year instrument at 5.25%, and CPI sold a 10-year bond shortly thereafter at 5.10%. Yet Agrofert went ahead with a 6.00% issue. It should have made a capital call instead. [Czech Republic one-crown bond tax-free]

Glossary of difficult words

shareholders' equity - the net value of a company, or the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid;

didactically - in the manner of a teacher, particularly so as to appear patronizing;

syllogism - an instance of a form of reasoning in which a conclusion is drawn from two given or assumed propositions (premises); a common or middle term is present in the two premises but not in the conclusion, which may be invalid (e.g. all dogs are animals; all animals have four legs; therefore all dogs have four legs );

capital call - a call by a company for additional equity investment by shareholders or partners in order to fund cash shortfalls in development or operations.

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