Busy times for the bond market
In my article published two weeks’ ago dealing with the development in the sovereign bond markets in the US and also Japan, I had made reference to the state of Malta’s public finances in view of the increased exposure to Malta Government Stocks among the retail investing community following the lengthy period of very low interest rates.
I had also mentioned that participation by retail investors for MGS offerings should continue to be healthy despite the rise in corporate bond issuance as retail and corporate investors will increasingly deploy large amounts of excess idle liquidity across the banking system into income-generating assets across the capital market.
This is also being fuelled by the material decline in interest rates for short-term securities such as Treasury Bills and fixed deposits across a number of banks with most customers now searching for better alternatives rather than simply placing liquidity into low-yielding instruments or leaving far too much cash sitting idle in a current or savings account.
The appetite for corporate bonds will be put to the test over the coming days with three new bond issues concurrently being offer to the investing public.
Earlier this week, the offer period for the new Bank of Valletta plc subordinated bonds commenced. BOV is aiming to complete its €250 million Medium Term Bond Programme in terms of the Base Prospectus issued on 11 October 2024. Following the highly successful €100 million subordinated bonds at 5% in October, the bank announced another bond for a maximum amount of €150 million also at an interest rate of 5%.
In view of their subordinated nature, their callability feature, and since they are also subject to the EU Bank Recovery and Resolution Directive (BRRD), the bonds are classified as ‘complex’ financial instruments and may not be appropriate and/or suitable for all types of retail investors.
Should BOV manage to raise the full amount of €150 million, it would be a very important development for Malta’s bond market since this would be the single largest corporate bond to be listed on the MSE. This would also increase BOV’s bond issuance to over €410 million placing it as the single largest issuer in Malta ahead of the Corinthia Group (at €380 million) and the Hili Ventures Group (at €352 million).
The strong financial performance by BOV over the past two financial years together with the recent credit rating upgrades from both S&P Global Ratings Europe Limited (S&P) and Fitch Ratings Ireland Limited (Fitch) is surely contributing towards the evident strong demand for the new bond issue.
Given the continued growth in the bank’s balance sheet and the clear intention to redeem the €350 million bonds issued at the end of 2022 internationally at a coupon of 10% per annum at the first redemption date in December 2026, BOV will undoubtedly require additional issuance of bonds also next year.
Prior to the start of the offer period of the new BOV bonds, a recently-established company in Malta, namely MM Star Malta Finance plc, published a prospectus in terms of a €35 million bond issue at a coupon of 5.35%. The guarantor of the bonds owns and operates a 276-room hotel in Edinburgh through a number of subsidiaries. The hotel is operated under a hotel management agreement with TROO Hospitality, a white-label hospitality management company founded by Mr Winston J. Zahra together with Millemont Capital Partners. Millemont Capital Partners are also the owners of the guarantor through a fund structure in the UK.
These bonds are secured through the leasehold title of the hotel which is currently valued at €65 million, translating into a loan-to-value (LTV) ratio of 53.8% based on the €35 million bond issue. These bonds are also classified as ‘complex’ financial instruments due to their callable feature. In fact, the issuer reserves the right to redeem the bonds in whole or in part on any date as from 27 June 2029 subject to a notice period of 30 days. The final maturity date is 27 June 2031.
Meanwhile, earlier this week, another recently-established company in Malta, namely Golden Triangle plc, published a prospectus in terms of a €42 million bond issue at a coupon of 5.3%. The issuer, Golden Triangle plc, is the finance arm of Gilded Triumvirate LP established under the laws of the British Virgin Islands. The guarantor currently owns two hotels in Beverly Hills, California, which were bought in February 2025 for a total consideration of USD41.75 million. Subject to the successful completion of the bond issue, the guarantor will also own a prime office block valued at USD100 million that is adjacent to one of the hotels. Effectively, the owner of the existing office block (the Gores Group) will contribute the holding company of the office block in exchange for a 60% stake in the Gilded Triumvirate LP. The Gores Group will also receive a cash payment of USD18 million as part of this transaction. The remaining 40% stake in the guarantor is held by a joint venture called IHI Action LP, which in turn is ultimately owned as to 90% by Action Real Estate Company of Kuwait and 10% by International Hotel Investments plc (IHI). These bonds will be secured by a senior priority mortgage encumbering the two hotel properties, namely Maison 140 Hotel and the Mosaic Hotel. Essentially, the cash flows that will be generated by the guarantor of the bonds are contracted by related parties and therefore the issuer is not exposed to the credit risk of the ultimate tenants.
The two new bond offerings by MM Star Malta Finance plc and Golden Triangle plc share some similar features in that they are exposed to the real estate sector in specific cities internationally (namely in Edinburgh and Beverly Hills respectively) but listed on the MSE. These offer those investors who mainly focus on securities listed domestically to obtain geographical diversification in their portfolios since the income-generating properties which they finance are located in important cities overseas. This could prove to be an important development for the local capital market.
The MSE may be willing to consider attracting relatively smaller bonds when compared to those offered across the larger international markets that can be absorbed through the Maltese capital market. Such offerings should be viewed positively by the investment community in view of the large concentration of bonds currently listed on the MSE and mainly dependent on the Maltese economy. Moreover, the involvement of well-known Maltese individuals or corporates in partnership with international players should also be positive features for investors.
These three new bonds being offered concurrently amount to a total of €227 million. Although this may seem to be too large for the local market to absorb in a very short period of time, this must be viewed in the context of the resident deposit base in Malta amounting to over €26 billion.
With the addition of these new bonds to the Regulated Main Market of the MSE, the total size of the corporate bond market will exceed €3 billion. Although suddenly there is regular mention of the bond market in various parts of the media and also via a number of social media channels, it remains extremely important for investors to obtain the necessary guidance on the features of any bonds and the financial strength of the issuer and its guarantor if any. As I opined in the past, this analysis is necessary throughout the lifetime of a bond and not solely at the stage when new bonds are being offered to the public.
Print This Page DisclaimerThe article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article. Additional information can be made available upon request from Rizzo, Farrugia & Co. (Stockbrokers) Ltd., Airways House, Fourth Floor, High Street, Sliema SLM 1551. Telephone: +356 2258 3000; Email: info@rizzofarrugia.com; Website: www.rizzofarrugia.com © 2021 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved. This article may not be reproduced or redistributed, in whole or in part, without the written permission of Rizzo Farrugia. Moreover, Rizzo Farrugia accepts no liability whatsoever for the actions of third parties in this respect.
This article was produced by Edward Rizzo, Director at Rizzo Farrugia, which is a company licensed to undertake investment services in Malta by the MFSA under the Investment Services Act, Cap. 370 of the Laws of Malta and a member of the Malta Stock Exchange. The company’s registered address is at Airways House, Fourth Floor, High Street, Sliema SLM 1551, Malta.