Expected bond issuance programme during summer

Article #494 by Edward Rizzo - Published Weekly

Early last week, the Malta Stock Exchange distributed a notice to its members (i.e. stockbroking firms) detailing the indicative listing calendar for July and August. Five bond issues are expected to be launched by the end of August for a total amount of €103.5 million. No information was given on the identity of some of the issuers (there was only mention of those that have already been approved and publicly announced namely, Central Business Centres plc and Grand Harbour Marina plc). Naturally, no indication was given about the interest rate on the three other bond issues on the list that have yet to be approved by the Listing Authority.

The MSE made reference to the €6 million bond issue by Central Business Centres plc as part of a €10 million bond issuance programme approved at the end of May. This issue has since been fully subscribed and the bonds were listed last Monday.

The second item on the list was the roll-over and additional debt being issued by Grand Harbour Marina plc. GHM published a prospectus and a financial analysis summary providing all details, risk factors and financial projections. GHM opted for an early repayment of its €11 million 7% bonds that had been issued in January 2010 and this is being refinanced via a €15 million 10-year bond issue at 4.5%. Apart from refinancing of the maturing bonds, a maximum of €3.5 million will be used to finance further waterside investment as well as any other possible investments that fall within the company’s wider investment objectives while the balance will be utilised for general corporate funding purposes.

The notice also referred to a €20 million bond issue as part of a roll-over of an existing bond coupled with an additional amount being issued. As I had mentioned in my article a few weeks ago explaining the reasons for the lack of issuance in recent years of bonds with an early repayment option, there is only one other callable bond that may be redeemed at the moment since all other callable bonds still have some years to go before they can be redeemed.

The major surprise in the notice were two additional issues in the weeks ahead. It is not clear whether these are from companies which already have their shares or bonds listed on the Borza or whether these are maiden issues from new companies that never had financial instruments available for public subscription. As is customary practice, this information will be available in due course. If any of these issues are from existing companies which already have equity and/or bonds on the MSE, then a company announcement will be issued once the formal application to the MFSA is made. This normally takes place about 7 days prior to the date when the issue is discussed by the Listing Authority. On the other hand, if any of these issues are from new companies, a company announcement will not be made and the normal procedure is that a notice appears in the media informing the public that a Prospectus was filed at the Registry of Companies following approval by the Listing Authority.

These bonds would represent the third and fourth new issues for this year following the €65 million bond issue of SD Finance plc and the €25 million issue of Von der Heyden Group Finance plc apart from the share offering of PG plc. All other issues were roll-overs mainly reserved for existing bondholders. These were from Eden Finance plc, Mediterranean Investments Holding plc and Tumas Investments plc.

Some market observers may be surprised that no reference was made about any new Malta Government Stock issues. The Treasury has so far only tapped the market on one occasion this year. As I had analysed in my article published on 2 March 2017, the MGS issue in February was not a successful one since retail investors only subscribed for €19.1 million (nominal). Although the total demand exceeded €282 million, the total amount issued across the three MGS’s of €182.87 million was below the maximum permissible amount of €220 million. This was due to the fact that although participation from various institutions was very strong indeed, there were also significant amounts of tenders placed below the fixed offer prices available to the general public.

Moreover, in the MSE notice of last week no reference was also made about the Malta Government Savings bonds targeted to pensioners. This had first been mentioned by the Minister of Finance in the 2017 Budget Speech on 17 October 2016. Meanwhile on 5 January 2017, the Treasury had published its own indicative calendar in which it indicated that the savings bonds will be issued in the second half of 2017. The indicative listing calendar published by the Treasury stated that the maximum issuance cannot exceed €600 million and the Treasury was planning on launching 4 to 5 issues. As such, it is strange that the indicative calendar published by the MSE for July and August makes no reference whatsoever to any issuance by the Treasury in the weeks ahead.

Unfortunately, the listing calendar also did not mention any new share offering. Following the fiscal incentives introduced during the 2017 Budget Speech and the hugely successful Initial Public Offering of PG plc earlier this year, this is rather disappointing. The significant demand for the share offering in PG plc, the high trading activity in PG plc once the equity began trading on the secondary market as well as the increased trading volumes in some other shares especially in recent weeks, provides substantial evidence of the appetite for equities in Malta. Hopefully, some Maltese companies will indeed emulate the recent decision by PG to publicly list its shares, giving investors alternative opportunities in the equity market.

In the past, the MSE had also issued indicative listing calendars but unfortunately this was not updated regularly. The MSE should consider issuing such a notice on a periodic basis (say quarterly) since it provides valuable information to financial advisers to assist their clients accordingly when they regularly inquire about upcoming investment options.

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