Mediterranean Investments Holding plc (MIH) is tapping the local bond market for the third time since the company's inception five years ago. MIH announced details of a new bond issue mainly to fund its 25 per cent equity participation in the Medina Tower project.

The total issue is of an equivalent of €30 million available for subscription in EUR, USD or GBP subject to an over-allotment option of an equivalent amount of €10 million. €15 million have been reserved for preferred applicants (shareholders and bondholders of International Hotel Investments plc as well as bondholders of Corinthia Finance plc and Mediterranean Investments Holding plc) who will need to submit Application Form 'A' to their Authorised Financial Intermediary by July 8. A further €15 million will be available during the pre-placement taking place on July 9. These new bonds will be admitted to the Official List of the Malta Stock Exchange and not to the Alternative Companies List as the previous two bond issues by MIH. The company has applied to the Listing Authority for these two bond issues to be upgraded to the Official List.

Following the successful development of the Palm City Residences project, MIH is now moving ahead with its second investment in Libya - through a 25 per cent shareholding in the Medina Tower high-rise development. The company is now entering the next phase of its development as it has started to generate revenue through its subsidiary Palm City Limited. The Palm City is a unique 413-unit gated compound in Janzour, Libya comprising residences ranging from one-bedroom apartments to four-bedroom fully-detached villas, a supermarket, a bank, a variety of retail outlets, a laundry, a health clinic and a number of food and beverage outlets. The development occupies a total area of 171,000 sqm.

The Palm City residential units are being leased and not sold by the company. Two hundred and eighty-two units within Palm City (72 per cent of the total stock) have already been confirmed. The Palm City residences are leased mainly for periods of three - five years and the company is confident that it will finalise the lease of the remaining units by the end of 2010. Average occupancy levels during 2010 are estimated to reach 55 per cent rising to 95 per cent during 2011. Meanwhile all commercial areas are anticipated to be completely leased out as from 2011, most of which are already operational including a 1,000 sqm supermarket. The leases are being concluded with various multi-national companies operating in Libya involved in wide-ranging industries including oil and gas, financial services, construction, medical services and the aviation industry. Palm City Residences is expected to achieve an average monthly rental of €5,169 per unit.

The architectural firm DeMicoli & Associates was engaged to prepare a valuation of the Palm City Residences project supported by PricewaterhouseCoopers who were appointed to review the financial projections of the operation. As at December 31, 2009, the Palm City Development was valued at €232 million while the value of the property on maturity (which is anticipated to be between the first and second year of operation, i.e. 2010-2011) has been estimated at €275 million.

MIH's second investment in Libya is a 25 per cent shareholding in the Medina Tower Joint Stock Company for Real Estate Investment and Development. This joint-venture company is currently in the process of being registered and the shareholding structure will be split up as follows: 50 per cent shareholding by Al Enmaa for Economic Development and Real Estate Investment Company of Libya (EDREICO); 25 per cent by MIH and the other 25 per cent by International Hotel Investments plc.

The Medina Tower joint-venture company will develop a parcel of land measuring 11,000 sqm into a 40-storey high-rise tower mainly focused around 242 residential properties for sale and for leasing out as serviced apartments; 23,000 sqm of office space for rent; 22.000 sqm of retail, conference, leisure and food and beverage facilities for rent and 36,000 sqm of underground parking that will cater for 1,000 parking spaces. Construction is planned to take 48 months to complete.

As MIH's two investments are based in Libya, a risk which investors will be contemplating before applying for some MIH bonds is the political and economic risk of doing business in Libya. In this respect, investors are very likely to be taking into consideration the experience gained by the Corinthia Group from operating successfully in Libya since the 1970s as well as the more recent experience of MIH in completing the Palm City Residences project to such high standards. Furthermore, the recent economic progress in Libya following the lifting of sanctions in 2004, which is highly evident from the large number of multi-national companies entering the Libyan market and thus fuelling demand for real-estate projects, is another major positive factor which will influence potential investors.

In the Prospectus dated June 14, 2010, MIH published its financial projections from 2010 to 2017. The table above provides extracts from the financial statements for the first three years until 2012. Since Medina Towers is expected to become operational in 2014, the financials in this table only cover the activities of the Palm City Residences. MIH expects to achieve a 55 per cent average occupancy level at Palm City during 2010 increasing to almost full occupancy (95 per cent) as from 2011.

Total revenue is projected to increase from €13.4 million in 2010 to over €25 million as from 2011 from the leases of the Palm City units. This will translate into an EBITDA figure of €9.25 million in 2010 rising to over €21 million in subsequent years. Based on total interest payable by MIH on the three bond issues to date, the interest cover increases from two times in 2010 to above three times in 2012.

The debt to equity ratio compares favourably with other issues although a large part of MIH's total equity is made up of the revaluation reserves following the strong uplift in the value of Palm City Residences. The overall gearing level of MIH decreases over the years as bank borrowings related to Palm City are repaid.

As from the financial year commencing January 1, 2012, MIH has agreed to create a sinking fund to meet part of the redemption proceeds due in 2017. The prospectus indicates that MIH is also in the process of making the necessary final preparations for a public offering of shares in Palm City Ltd thus reducing its shareholding in the subsidiary to 75 per cent. When this is completed, MIH will set aside an amount of €12.4 million to accelerate the build-up of the sinking funds related to the previous bond issues which mature in 2014 and 2015.

A distinguishing feature from other bond offerings recently is that these bonds are also available for subscription in GBP and USD (other than euro). This is very likely to be well received by investors especially those who hold funds in USD and GBP and are unwilling to divest out of these currencies as a result of the current weakening phase of the euro.

Rizzo, Farrugia & Co (Stockbrokers) Ltd acted as Sponsors to Mediterranean Investments Holding plc in respect of this Bond Issue.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

© 2010 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

www.rizzofarrugia.com

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