€297 million raised in the bond market in Q1

During the first three months of 2010, the bond market remained very active as €297 million were raised by the government of Malta and five other corporate issuers. Although in 2009 a sizable number of bonds were offered to the public (€810 million was raised by 10 corporates and the government), once again all six bond issues launched so far in 2010 were very well received by investors. In fact, excess demand touched €130 million with all issuers reporting over-subscriptions.

This augurs well for other companies planning to raise funds on the primary market during the second quarter of the year. Indications are that a further six bond issues are likely to hit the market in the next three months.

Together with the Malta government who will again be issuing new stocks, another five companies will be tapping the market. These are Izola Bank plc, Mediterranean Investments Holding plc, Simonds Farsons Cisk plc, Eden Finance plc and Tumas Investments plc, who have already announced their intentions either via the press or through a Malta Stock Exchange announcement.

In an interview published in the press on February 28, the general manager of Izola Bank plc announced that the bank shortly intends to issue €7 million five-year secured bonds with an over-allotment option of a further €2 million.

Izola Bank has actually already been granted MFSA approval to issue a base prospectus for a debt issuance programme of an aggregate amount of €28 million and this five-year bond should be the first in a series of bond issues planned by Izola Bank in the coming months.

Meanwhile, over the past 10 days, three other public companies announced their respective bond issues.

Mediterranean Investments Holding plc issued a company announcement on March 30 informing the market that it is currently in the process of applying to the Listing Authority to launch a €30 million bond issue with an option to increase the amount to €40 million.

MIH which is jointly owned by the Corinthia Group and the National Real Estate Company of Kuwait is raising these funds to proceed with its second property development in Tripoli following the successful completion of the Palm City Residences complex.

Furthermore, early last week, Simonds Farsons Cisk plc announced that it had submitted an application to the Listing Authority requesting the approval of a new €15 million unsecured bond issue.

The bonds will mature between June 15, 2017 and June 15, 2020 and the proceeds will be mainly used to finance the redemption of the existing €9.3 million 6.6 per cent bonds which have an early redemption option from November 2 while the balance of the funds will be applied for the general financing requirements of the Farsons Group, including the construction of a new brew-house.

A few days later, Eden Finance plc announced that it also had submitted an application to the Listing Authority for a €15 million bond issue with the new bonds redeemable between 2017 and 2020 and guaranteed by the parent company Eden Leisure Group. Eden Finance had first tapped the market 10 years ago and their €23.3 million 6.7 per cent bonds are due for redemption on October 12.

The proceeds of the new bond issue will be used to partly finance the redemption of these bonds and existing bondholders will be given preference over new investors.

Meanwhile, last Tuesday, Tumas Investments plc also confirmed that it too had submitted an application to the MFSA Listing Authority seeking admissibility to listing of a proposed issue of €20,000,000 new bonds subject to an over-allotment option of an amount not exceeding €5,000,000.

The bonds will be unsecured but guaranteed by Spinola Development Company Ltd. The proceeds shall be primarily used to redeem the €16.3 million 6.7 per cent Tumas Investments plc 2010-2012 bonds.

While some observers may be surprised at the total amount being raised via the bond market, it is worth mentioning that the funds raised through bond offerings over the past 15 months (totalling €1.1 billion) represent a relatively small percentage of the total deposits held with local banks which are in excess of €9 billion. The high level of bank deposits at a time of historically low interest rates (widely expected by many international economists to remain at this level until the first quarter of 2011) shows the potential for further growth in the local bond market and the opportunity for companies to utilise the bond market as an alternative means of financing.

With the bond market undoubtedly being the prime beneficiary of the low interest rate environment, some equities are very likely to have also benefited from this scenario. Companies offering high dividend yields (such as Maltapost plc, Malta International Airport plc and Go plc among others) saw a significant increase in their share trading activity in recent months. This is a clear indication that investors are returning also to the equity market. These three companies are among the top dividend yielding companies on the local market and all have recently announced attractive dividend payments enticing some investors to take exposures to these companies.

In Maltapost, a total of 1.54 million shares were exchanged so far this year (representing over five per cent of the total share capital of the company), compared to activity of only 493,000 shares in 2009.

Likewise, during the first 15 weeks of the year, over 230,000 MIA shares were traded, almost equivalent to the trading volumes in 2009 of 298,000 shares with the share price also climbing by 30 per cent in the process.

Furthermore, almost 620,000 Go plc shares were traded since the start of 2010 compared to 1.37 million for the whole of 2009. However, the volume of Go shares traded so far this year represents a substantial increase from the trades effected in the same period of 2009.

The increased trading activity in these three equities helped the value of equity market trades rise to €10.2 million in the first quarter of 2010 compared to €5.6 million in the first three months of 2009. Despite this strong upturn, the volume transacted in the first quarter of 2010 is still substantially below the trading activity in the first half of 2008 and prior years. While 2010 started on a very encouraging note with a total of €4.7 million worth of trades passing through the market in the first month of the year (the highest monthly volume in two years), activity declined to under €3 million in each of the subsequent two months, mainly on lower activity in the equities of the large banks.

BoV and HSBC saw a high number of trades in the first few weeks of the year helping their share prices climb to €3.76 and €4 respectively by January 20. The benchmark MSE Share Index had almost touched the 4,000-point level on the day (+14.3 per cent since the end of 2009) but this initial rally has since fizzled out with the Index closing the quarter at 3,549 points, just 2.6 per cent higher in the three-month period. Similar to the trend seen in 2009, the local equity market underperformed the main global markets as these gained between 4.9 per cent (S&P 500 and the FTSE 100) and 5.7 per cent (Nasdaq) in the first quarter of 2010. The decline in trading activity and subsequently in the level of the MSE Share Index occurred in the aftermath of the subdued full-year results announcement by HSBC Malta and the decline in their dividend payment to shareholders.

While this announcement dampened investor enthusiasm towards HSBC and possibly the wider local equity market, the BoV interim results announcement in the coming weeks is an important event and should give a clearer direction to the equity market.

Meanwhile, the bond market is expected to continue attracting investors with no less than six new offerings in the weeks ahead.

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.

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