Signals from Midi’s IPO

The outcome of the initial public offering by Midi, the property company which is developing Tigne’ Point and Manoel Island, will need to be analysed by the promoters of the Stock Exchange, in addition to the shareholders themselves.

The offer did not do as well as may have been expected, if nothing else given that demand for the shares offered to the public was not such as to enable the optional offer of shares to be taken up. I do not think that is a reflection on the Midi itself, or its shareholders.

The shareholders include some of the best business names in Malta, led by Albert Mizzi, one of the most experienced and shrewdest operators around. Though the company was undercapitalised for the size of its ambitions, it had a lot going for it, and will have for a long time.

The shareholders showed their belief in the project by putting up substantial amounts of their own cash, and by ploughing back into the set-up the receipts they made from sales of apartments to date. They also took up new shares by converting a stand-by loan provision into equity. Nor did they hesitate to take up the residual of shares from the original offer not subscribed by the public in response to the IPO.

Moving forward, the company has a portfolio of property to be completed or, at Manoel Island, to start being developed which is as prime as prime could be. That will serve it in good stead in the coming years, even as the company will be looking into its timeline for getting on with its plans. Meanwhile, it should have a growing revenue stream from the outlets at The Point, and from further commercial lettings.

Why, then, was the response to the IPO not more robust?

For starters, there is the prevailing investment climate. Every day we are bombarded with news of what is going on in the eurozone area, dire predictions that some countries might be forced to leave the eurozone, that the zone could split into two different-speed set-ups, or that it might even break up.

That is unlikely to happen, but investors are worried and their investment perceptions are not at their best levels. Having only recently come out of a severe global recession, there is frequent high volatility in the equity and currency markets. All that cannot but affect risk appetite, in Malta too, for no market, small as it may be, is an island.

Then there was a liquidity factor which also turned the timing of the Midi IPO into a problem. The market has just snapped up €100 million worth of government stock. The takers came from the retail market which was the main target for the Midi shares.

Another issue which did not help perceptions was the resignation of three directors, all of whom were well-known. The reason why they resigned was consequential to the reduction of the board number from 11 to a more manageable eight. But that was not widely understood, even though the company explained it.

The final factor at play – a very important one - was cultural. Maltese investors have a tremendous appetite for bonds, not least because of the prevailing very low rates of interest on bank deposits, negative after allowing for inflation. Also, some of those who did invest in local share issues feel they have not done well enough out of them, allowing for the early issues of banks and Maltacom shares.

I have a feeling that in time there will be better appetite for Midi shares in the secondary market, as there was for its bond issue in the primary market. Whether that will be fed by the shareholders remain to be seen.

Meanwhile, the bad news I see for the Stock Exchange itself lies in the cultural factor. Our Borza does not have enough companies who ventured forth for it to issue existing shares or raise new capital, especially allowing for the shares privatised by the government, in Bank of Valletta, the former Mid-Med Bank and Lombard Bank, as well as in Middlesea and the former Maltacom.

Not enough private companies have been persuaded to test the market, in part because so many domestic companies remain family companies, though many have reached maturity and some of them could be approaching breaking up, after several generations united. Tax considerations are another reason. Listed companies are under more pressure to be transparent, though there are private companies which declare to the last euro.

We are, therefore, in a vicious circle. We do not have a deep-seated equity culture and the fewer approaches there are to the market by private shareholders, the longer it will take for the culture to grow. Bad experience with investment in foreign equities, not least due to the timing of such investment, does not help either.

However the Midi IPO went, it is a step forward that a new name, a big one at that, has been added to the Stock Exchange list.