Archive for the ‘Credit Crisis or Not?’ Category

Record Amount of Bonds, Worth Over €290 Million, Issued in 2009 – Article by Claire Azzopardi – The Commercial Courier Dec 2009 – Jan 2010

January 12, 2010


For anyone who follows the local business news, the developments at the Malta Stock Exchange throughout 2009 must have certainly made for an interesting read. Despite the fact that the local business community does not usually turn towards the stock exchange as its primary means of raising capital, the last year seems to have brought a sharp turnaround in this trend with a record €290 million new corporate bonds being issued.

Even though this figure is a mere drop in the ocean when compared to capital raised through bank loans, it is the largest amount of money ever raised by companies in Malta through the stock ex-change. Edward Rizzo, Director of Rizzo Farrugia & Co Stockbrokers, observes that “this is a very positive development, although it has taken many years for the corporate bond market to register such growth and provide companies with another source of funding as opposed to customary borrowing from the bank.”

But perhaps the massive surge in the bond market should not come as a surprise. The historically low interest scenario following the sudden deterioration in global economic conditions by all major central banks, including the European Central Bank has had a remarkable negative effect on the returns earned on deposits held at banks. As a result, the demand for more rewarding investment options rose by a large number of investors, and with this increased demand, it suddenly became much more lucrative for private companies to raise the capital needed by issuing bonds on the stock exchange.

But this also begs the question ‘where is the money coming from?’ One may almost expect that during a recession, potential investors may not have a great amount of money to invest. However, the fact that the Maltese traditionally have a high propensity to save, could mean that many are still in a position to invest.

The safety offered by depositing cash at the bank may not be enough of an incentive to override the riskier, but potentially more rewarding, rates offered by the corporate bond market. Even though this may certainly be the case, Dr Cordina emphasises the fact that it is “quality companies that issue quality bonds will attract investment.”

This seems to indicate that while Maltese investors are showing a keen interest in investing in stocks bonds and shares, they display a tendency towards being risk averse and will carefully select their next investment.

Mr Rizzo explains that in 2009, ten individual private companies issued bonds on the local stock ex-change. He continues to explain that investors’ increased interest in bonds has also spilled over to the ‘secondary market’, with an increasing number of bonds being traded on a daily basis. “An increased awareness of the bond market was sparked when three new bond issues came to the market simultaneously in September – Corinthia Fi¬nance plc, Island Hotels Group Holdings plc and Melita Capital plc – which attracted a great deal of attention from potential investors,” he says.

Dr Gordon Cordina, a well known economist, explains that “in this time of economic crisis, various operators around the world are trying to sell quality bonds at a good rate which is favourable to the investor, and there is a strong demand for it. Take Microsoft for example… this is the first year that this massive global company has turned to the bond market.” “

The current trend is for companies to issue long-term bonds at a low interest rate, but the quality of these bonds is of paramount importance. This trend has also been reflected in Malta, within the limits of the domestic market. The fact that the domestic market had a high liquidity rate was also beneficial for the local bond market, but it is only quality companies and bonds that are likely to enjoy success in this regard,” he emphasises.

Yet another point that may be having a positive effect on the local bond market is linked to the negative experience that a number of local investors have had with some international bonds, including Lehman Brothers. Losses made through investments that lost substantial value during the economic crisis may even have enhanced the attractiveness of investing in local companies, as fluctuations and developments can be closely monitored and responded to in a timely manner.

Interest rate levels are often a double edged sword – while the cost of borrowing may be ‘cheaper’, investing in the bank was no longer an attractive option. This is most certainly one of the main reasons why the local bond market experienced such a surge throughout 2009. Companies and investors that were traditionally more inclined to turn to the banking system for financial support and investment options have increasingly started to turn to the stock market for investment and capital raising opportunities. The role of the stock exchange acting as an efficient intermediary, by facilitating the flow of capital and investment thorough the right channels has started to work more smoothly, and an increased flow was highly evident in recent months.

However, although the bond market has attracted a large inflow of funds in 2009, the same cannot be said for equities.

Mr Rizzo explains that share prices fell by approximately 16 per cent in the first quarter of 2009, hitting a low towards the middle of April. “This was not particularly surprising, as the economic recession has had a massive impact on investor sentiment, as well as financial performances of various companies. An encouraging recovery has been registered, and even though the rate of this recovery in Malta is still lower than that registered in other international markets, we are expecting this positive trend to continue to the end of the fourth quarter and beyond,” he says.

Mr Rizzo explains that four companies in particular have performed well. “Bank of Valletta’s performance has been remarkable – the company’s shares registered an increase of 30 per cent from the beginning of the year. HSBC was another good performer with an increase in share price of 14 per cent, while GO also registered a 10.7 per cent increase. Unfortunately, many of the other companies having shares listed on the stock exchange are still in negative territory,” he concludes.

These intriguing developments on the local and international stock markets will surely be followed closely by all economic stakeholders with government, investors, banks and even the general public using the trends registered within stock markets as an indication of future trends in the economy. Expectations for 2010 are high… perhaps 2010 will be another fruitful year for the Malta Stock Exchange?


 Bank of Valletta plc € 50 million

Corinthia Group of Companies € 25 million

Fimbank plc € 30 million

Gasan Group of Companies € 20 million

International Hotel Investments plc € 35 million

Island Hotels Group Holdings plc € 14 million

Melita plc € 25.9 million

MIDI plc € 40 million

Mizzi Organisation € 30 million

Tumas Group € 25 million

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The crisis of credit visualized – Video by Jonathan Jarvis

December 22, 2009

The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated.  

  For further information, kindly click here .

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