For a long time, the New Dolmen Hotel was the centrepiece of the Tumas Group. It is located right at the heart of the holiday towns in St Paul's Bay, between Bugibba and Qawra, dominating one of the best views of St Paul's islets and is spread over nearly 23 tumoli of coastal land.

Dolmen Properties plc has announced the issue of Lm4.7 million six per cent secured bonds, Lm1.7 million of which being the over-allotment option which the issuer may choose to accept or not. Interest on these bonds shall be payable on November 20 of each year until the bonds are redeemed, on November 20 of any of the years 2010 to 2013.

Dolmen Properties is a company within the Tumas Group and is the owner of the Dolmen Hotel and the surrounding amenities.

This bond is likely to become one of the more important benchmarks in the local bond market and, considering its strong features, is being offered at a very attractive coupon, around 1.4 per cent above the average government bond rates for 2010/2013 as published by the Central Bank, excluding the Church bonds.

The bonds have three important security features. First, the bonds are secured by a special hypothec over the property and this hypothec is held by HSBC as trustee for the bondholders.

Second, there is a Bond Redemption Fund which will be credited by 66 per cent of the available free cashflow from the hotel which will fund the redemption of the bonds.

Third, the bonds are being offered to the public directly by the company which owns the Dolmen properties. So far in Malta, no other bond issue has combined all these security features.

Dolmen Hotel is a superior four-star hotel and, in the first six months of this year, had an average occupancy rate of 64 per cent, which is higher than the equivalent data reported by the Malta Hotels and Restaurants Association, as was the revenue per available room which was Lm 3.26 higher. It had a similarly good performance last year.

With a staff complement of 257, the hotel has 379 double bedrooms, extensive gardens and sports facilities, an array of restaurants and bars, the renowned Oracle Conference Centre, and the Oracle Casino. There are also 47 timeshare apartments but, on these, the first ranking hypothec is that in favour of the timeshare owners on account of the prior date of registration.

For 2002, turnover was Lm3.3 million and profit before tax Lm208,000. In the event that the over-allocation option is exercised, bond interest will be covered by cash profits by 3.4 times.

The key executives at Dolmen Complex Limited are Alex Pace who, since 1994, has been general manager of the hotel, and Lino Grima, the hotel's and the casino's financial controller who is an active participant in the management team.

In addition to the Dolmen property, the issuer, Dolmen Properties plc, also holds 99.9 per cent of the shares of Dolmen Complex Limited, which is the operator of the Hotel.

Dolmen Properties plc has leased the hotel to Dolmen Complex Limited. As a result, therefore, Dolmen Properties plc has full control and is the full owner of all the profit and net cash flow streams generated by the hotel via rental payments, dividends, and other transfers.

The money raised by the bond issue will be used by the two Dolmen companies to upgrade, expand and refurbish the Dolmen Hotel and to refinance existing banking facilities of Lm2.6 million.

Upgrading work has been carried out in phases, starting in 1999, and the last phase is planned to start in December, necessitating the closure of the hotel until February next year. The full project is expected to be completed in May at an estimated cost of Lm2.2 million.

The works include the addition of 20 suites and eight superior rooms on the sixth floor, all with panoramic sea views, refurbishing of existing rooms including the installation of new bathrooms, refurbishment of the public areas and the corridors including the installation of two additional guest lifts, upgrading the Menhir Restaurant, new plant room equipment, new reverse osmosis plant, the replacement of all existing hot water and air-conditioning pipes throughout the hotel, upgrading the kitchens and the pool deck, and a new fitness centre including spa.

Importantly, therefore, by means of this issue of bonds, Tumas Group will be adding value to the Dolmen Hotel.

Furthermore, in itself, as a property, the Dolmen site is prime property in the sense that it has tourism, commercial and residential potential. Although at present in the tourism industry, the Dolmen site has huge potential for alternative use.

The Bond Redemption Fund shall be credited each year, starting in 2004, with 66 per cent of "available free cash flow", as defined in the Offering Memorandum dated October 28, 2003. The fund will be invested in bank accounts and other conservative investment instruments, including the bonds, and be managed by an investment committee chaired by the independent director.

The offering memorandum lists a number of risk factors which prospective investors must study before they decide to invest. These are divided in two main sources: those emanating from the upgrade and expansion of the Dolmen Hotel and those emanating from operations within the tourism industry. All capital projects carry certain risks and tourism in Malta is subject to the economic, political and security conditions in Malta, the attractiveness of Malta as a tourism destination, the impact of EU membership, and competitive pressures.

The directors of Dolmen Properties are George Fenech, Raymond Fenech, Lino Spiteri and Ray Sladden.

George Fenech, 51, is the eldest son of the late Tumas Fenech, the founder of the Tumas Group. Mr Fenech was actively involved in the business development of the main divisions of the group and spearheaded new areas for the group, principally in the hotel, leisure and timeshare. He is renowned for his ability to motivate people and was the driving force behind the Portomaso project which has already floated two successful bond issues.

The Fenech family developed an effective management system to run the group. Each company within the group has its own management and all have at least one family director closely involved in its affairs.

Mr Fenech is managing director of all the companies within the Tumas Group. By effectively being the executive head of the group, he provides what I call the first layer of coordination.

The second layer comes from having a small but highly skilled team of executives at the head office. This decentralised organisational structure is brought together via strong central financial controls. While each unit is motivated to achieve, the strategies of the individual units and of the group as a whole are coordinated via these coordinating layers. This structure is much like the one used by Warren Buffett in managing and developing Berkshire Hathaway from a small textile company in 1965 to one of the world's largest companies today.

According to Mr Fenech: "The key role which the head office plays within the organisation is augmented by the expertise of our management complement. A highly-skilled team coordinates each division's activities in tune with our overall strategic vision. This is crucial to the group's success."

Raymond Fenech, 43, has for a number of years been involved in the management of the group's hospitality division. Since 1999, he has been executive director of the property division which, given the Group's extensive land holdings, is a major position. He has managed and overseen the development of various real estate projects . He is a director in all Tumas Group companies.

Lino Spiteri, 64, a non-executive director, is an economist and has served as the editor of a main newspaper, a member of parliament for 21 years, and three times as a government minister, including twice as a minister of finance. He served as Deputy Governor of the Central Bank and chairman of its board of directors. Mr Spiteri is a financial consultant and is a director in a wide range of companies.

Ray Sladden, 48, is a certified public accountant and, since 1998, has held the position of group finance director and company secretary of all companies within the Tumas Group, including Tumas Investments plc and Tomino Limited. He was previously financial controller and, subsequently, group treasurer of Air Malta plc. He has held various directorships in companies in the airline, hospitality, insurance and finance sectors.

The offering memorandum is out and should be studied by any person interested in investing in the bonds. In addition to the usual information one can find the property valuation and the trust deed.

Application forms are available from stockbrokers, investment advisers and banks and subscription lists open on Thursday, and close on November 12, or earlier.

Azzopardi Investment Management Limited is co-sponsoring stockbroker together with HSBC Stockbrokers (Malta) Limited of the six per cent Dolmen Properties Secured Bonds 2010-13.

Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.