The Labour Party has reassured investors that a new government would honour commitments with a contested company set up to the fund the City Gate project.
In Parliament, the Labour Party voted against the setting up of investment company Malita Investments that will be responsible for funding the new Parliament building and the roofless theatre.
As investors mull the prospect of buying up to €15 million worth of shares in the company, the party has allayed fears it could reverse the arrangement when in government.
“Labour will not meddle with the markets and reassures investors that a new government will honour commitments made with them,” a spokesman said.
In financial jargon the company is known as a special purpose vehicle and, although the government will own 70 per cent of the shares, the debt incurred to finance public projects will not appear in national accounts.
The company will lease back the Parliament building and the roofless theatre to the government. It will also receive income from the lease agreements the government has with Malta International Airport and the Valletta cruise terminal.
In August, the company’s shares will be floated on the stock exchange and company directors have said it was their intention to offer a dividend of seven per cent.
Stockbrokers yesterday confirmed they had some queries from clients over the political risk associated with the company because of the PL’s opposition.
But the party spokesman insisted the opposition made its position clear during the parliamentary debate. “The Labour Party expressed serious reservations on the special purpose vehicle for the new Parliament project, which is essentially an expensive ego-trip by the Prime Minister. Nevertheless, Parliament took a decision and we respect it.”
Paul Bonello, managing director at Finco Treasury Management, said investors would evaluate the political risk before putting their money in the company.
“I would like to believe that political maturity will prevail and no new government will do anything to undermine trust by changing decisions taken by a previous Administration that will affect the public,” he said.
Mr Bonello noted that a bond issue would have probably made more sense in this case. “Shares are normally issued when the company has operational risks but Malita is pretty much inactive with predefined rent agreements that reduce the credit risk. A bond issue to raise capital would have made more sense.”
The government opted for equity rather than a bond, he added, so that the debt incurred to fund the projects will not appear on Exchequer’s books.
“It is a technical way of shifting debt. It is essentially window dressing. They are games people play and games governments play,” Mr Bonello said, adding that the share issue would most probably be oversubscribed because of the attractive dividend promised.
Another stockbroker, who preferred to remain anonymous, said the political risk was an element investors would take into account. “But any new government will face a Catch 22 situation because if it reverses the transaction it would have to find the money to pay for the project.”
Those concerns seem to have been allayed.
ksansone@timesofmalta.com