For many Maltese, the choice of name is rather confusing, because for them ‘Malita’ has come to signify the Gozo Channel ferry – one of the three that ply between Malta and Gozo. But mention Special Purpose Vehicle, and those of them who keep up with the news will instantly refer you to the Renzo Piano project for City Gate, the new Parliament Building and the Open-air Opera House site.
Well, the name of the SPV is now Malita, but Malita is not just about the City Gate project.
As the advert that appeared in last Sunday’s papers said: “Malita Investments has been set up by the Government of Malta to acquire, develop, manage and operate a portfolio of immovable property, as part of an initiative aimed at increasing public investment and involvement in urban regeneration projects.
“The assets currently held by Malita Investments consist of the International Airport and the Valletta Cruise Liner Terminal sites, long-established landmark locations considered to be strategic assets of national importance. Historically, these assets have generated a regular stream of ground rent payments, which are now attributable to Malita Investments. The first two investments made by the company were the acquisition of the Parliament building and the Open-Air Theatre from the Government of Malta. Both these assets are expected to generate consistent returns to Malita Investments in the form of rent receivable.”
Malita Investments will be issuing 20,000,000 Ordinary B Shares at a nominal value of €0.50 each to the public with a further over allotment of 10,000,000 Ordinary B Shares. The shares are being offered at an issue price of €0.50 each.
Subscriptions for shares will open tomorrow, 23 July, and will close on Friday, 27 July. The Ordinary shares are expected to be listed on the Official List of the Malta Stock Exchange on 16 August and trading is expected to commence on 17 August. Investment in the Ordinary shares of the company should be undertaken after giving due consideration to the prospectus which is available on request from the financial intermediaries as set out in Annex 2 of the Securities Note forming part of the prospectus, from Malita Investments’s website www.malitainvestments.com, from www.rizzofarrugia.com or from www.curmiandpartners.com
Malita Investments was registered with an authorised share capital of €150,000,000 divided into 113,000,000 Ordinary A Shares and 37,000,000 Ordinary B Shares, each having a nominal value of one euro. The issued share capital of the company on registration was €15,000,000 divided into 15,000,000 Ordinary A Shares each having a nominal value of one euro. Such Ordinary A Shares were subscribed to by the Government of Malta in the amount of 14,999,999 Ordinary A Shares and by Malta Investment Management Company Limited in the amount of 1 ordinary A share. On 29 May 2012, the shareholders resolved to re-denominate the nominal value of the Ordinary A Shares and the Ordinary B Shares from €1 to €0.50 per share, whilst on 30 May 2012, a further 20,000,000 Ordinary A Shares, having a nominal value of €0.50 per share, were issued to the Government of Malta against an equity injection of €10,000,000.
On 14 June 2012, a further 68,108,064 fully paid up Ordinary A Shares of a nominal value of €0.50 per share were issued in favour of the government in consideration of the acquisition by the issuer of the MIA Site and the VCP Site from Government. The registered address of Malita Investments is situated at Clock Tower, Level 1, Tigné Point, Sliema, TP01, Malta.
In an interview given to this newspaper, Malita chairman Kenneth Farrugia spoke about the history, aims and structure of the new company. It was set up in June 2011, but much homework had gone on before. Independent consultancy was sought and long discussions were entered into with the government.
Primarily, Malita is a property company that acquires and manages property. It also aims to involve the public in its shareholding and profits, so its structure is independent of government. This aim is assured through the shareholding structure: the government will be holding 70 per cent of the company and this level of equity participation can only be changed by the House of Parliament, while private investors will hold the remaining 30 per cent.
The company currently has five directors and two more can be appointed by the public shareholders. The directors who were involved in the setting up of the company at first numbered only three: Finance Ministry Permanent Secretary Alfred Camilleri, Malta Government Investments CEO Vincent Mifsud and Mr Farrugia as chairman.
The company, as said, was set up in June last year and the first months were spent establishing the company’s structures, identifying service providers – such as branding the company, establishing procedures, identifying sponsoring brokers, choosing auditors, managers for the IPO and laying the ground for the funding and investments to be made by the company.
At the end of this period, Mr Camilleri, as planned, resigned, and three additional independent directors were appointed. In choosing the new directors, careful consideration was given to the skills required, mindful of the nature of the operations of the company.
Frederick Mifsud Bonnici was chosen due to his many years of experience in accounting, audit and governance and also for his past chairmanship of the Malta Stock Exchange, and Ms Anne Marie Tabone for her accounting and insurance background in her senior executive role as vice president of Operations at Middlesea Insurance. Mr Danny Rosso, also an accountant by profession, held posts in this field the latest one as CFO and Finance Director with Gasan Group operating in property, automotive, telecommunications, industrial and commercial products. The new company then established its sub-structures. Particular care was given to the establishment of the sub-committees to ensure adherence to the principles of good corporate governance. Consequently, audit, investment and remuneration/nomination committees were duly set-up.
“The Audit Committee’s primary objective is to assist the board in overseeing the financial reporting process, dealing with issues of risk, control and governance; reviewing the company’s financial policies and reporting processes and internal control structure. The Audit Committee also oversees the conduct of the external audit and facilitates communication between the company’s Board, management and external auditors.”
The Remuneration and Nomination Committee is composed of three people as are appointed from time to time by the board of directors. The first members appointed to this Committee are: Kenneth Farrugia (chairman), Vincent Mifsud and Frederick Mifsud Bonnici.
The primary purpose of the Remuneration and Nominations Committee is to review the setting of remuneration levels within the company, including those for the executive directors.
Finally, the company has established an Investments Committee, the primary purpose of which is as follows:
a) Determining: (i) what investments the company is to undertake from time to time; (ii) and the prudent strategic investment policies within the parameters of which the determination in para (i) hereof is to be made, giving due consideration to the company’s funding requirements as these may vary from time to time
b) Considering proposed ethical positions with respect to appropriate projects and investments;
c) Overseeing the management of the company’s investments in accordance with such policies;
d) Reviewing, where necessary, the company’s investment policies.
In exercising its functions, the Investment Committee is required to ensure that any investment proposed to the board of directors does not materially and negatively disrupt the dividend policy adopted by the board of directors of the company from time to time.
The members of the Investments Committee are Publio Danny Rosso, chairman as well as a member of the company’s board of directors, Anne Marie Tabone, who is also a member of the board of directors and Tom Anastasi Pace, who currently sits on the boards of a number of collective investment schemes, fund management companies and insurance companies registered in Malta, including the Bank of Valletta Group’s fund management and fund administration companies. Between 2005 and 2006, Mr Anastasi Pace acted as director of the Privatisation Unit within the Investment, Industry and Information Technology Ministry.
The business model of Malita is very simple: it is in no way multi-tiered. There will be an accountant to handle day-to-day business with an additional resource planned to be recruited. It is envisaged that the company will have a relatively lean administration structure.
Funding
As to the funding of the new company, there will be two sources. The government has acquired 50 million shares against a capital injection of €25 million. In addition, the government has transferred two sites to Malita – MIA and Valletta Cruise Ports. The two sites were allocated by the government in 2001 and 2002 to MIA and VCP respectively on a 65-year transfer contract and have now been transferred to Malita for an equity consideration.
The value of the properties was valued by independent consultants and accountants. Together, the two sites were valued at €34 million for which 68 million shares were issued to the Government.
So, in all, the government holds 118 million shares of €0.50 each, equalling €59 million.
As to investments, only one has been made to date and that is, as previously stated, the sites of the new Parliament building and the open-air theatre through an emphyteutical deed for which Malita will be paying the Government a ground rent of €100,000 per annum as well as a premium of €82 million, which is the projected cost of the two buildings. In financing the premium, Malita initiated discussions with the European Investment Bank, which has agreed to finance 50 per cent of the project, that is €40 million, on the basis of the merits of the company. The EIB has conducted its own very detailed due diligence and information-gathering process on the entire project. The agreement with the EIB was signed on 25 June and the SPV bill was approved by Parliament at around the same date.
So, today Malita has two revenue streams: the MIA and VISET ground rents, which expire in around 56 years, and as from January 2013 it will also receive rent for the Parliament Building and for the open-air theatre, which have been contracted for 20 years and 30 years respectively.
These long-term contracted revenue streams offer Malita a degree of certainty on the levels of its projected revenues. At the same time, the EIB loan, which has two tranches of 20 years and 25 years, was agreed on the basis of a fixed rate of interest of around 3.3 per cent. This also explains why the overall costs of Malita are equally highly visible. The four properties will pay their rents twice a year and there will be two payments to EIB. So, to sum up, the cost of the Piano project, €82 million, will be covered by €40 million from EIB, €25 million from Malita’s capital, €15 million from this IPO and €3 million from the operational cash flow of the company.
The company’s business profile is such that the existing revenue streams are highly visible and quantifiable, given that they arise from long-term contractual agreements. These contracts also provide for the periodic revision of the ground rent and rental income arising. Furthermore, the risk of the debtors defaulting on the amounts receivable by the company is mitigated by the quality of tenants, the relativity of the amounts receivable compared to the market value of the properties – including the improvements undertaken thereto by the occupiers, as well as the inherent security enjoyed by the company at law as the dominus of the property sites.
The company’s cash outflows also carry a high degree of visibility. These comprise the cost of collection of the revenue streams and corporate administration costs and taxation. The resulting cash surplus is applied primarily to the servicing of borrowing and a high proportion of the balance is intended to be distributed in dividends to shareholders, so that the latter will receive a consistent return on the nominal value of their Ordinary Shares. The residual cash flows, after these appropriations, will be set aside for further re-investment in line with the Issuer’s established investment mandate, as the same is determined from time to time by the investment committee set up by the board of directors.
Normally, a newly-listed company on the MSE has to wait three years before it is quoted on the Official List but in this case this rule was waived, considering that the rents from MIA and VISET had been coming in for some 11 years.
Dividend policy
The company is also clear about its proposed dividend policy. It intends paying between 60 per cent and 75 per cent of its profits as dividends, which would give investors a 7 per cent projected gross annualised yield on the issue price of the shares.
As soon as the company’s results are out, a dividend will be announced and is planned to be paid in April and October. Ten per cent of profits will go into reserves for other investments the company may decide to make.
The company, in short, will have a market capitalisation of €69 million, going up to €74 million in the event of over-allocation. It will be the ninth largest company in Malta. “The stage at which we are today reflects the commitment of the company to bring the project’s funding to fruition”, Mr Farrugia concluded.
This company will be of benefit to any government of Malta as it encourages public participation in the funding of national and commercial projects that have an urban regeneration thrust. Despite the political controversy surrounding the Parliament building and theatre, the company’s focus is based on the merits of the project from a return on investment point of view. The government will always remain the majority shareholder and the company will always be a useful tool for investment.
The deal with EIB is a very good one and a very good case of foreign investment. €40 million may not be a huge amount for EIB, but an €80 million project is a huge investment for Malta. The EIB’s decision to extend funding to Malta at a fixed rate for the loan period reflects well on the company’s structure and on its business model.
The company is already looking for further opportunities for investment and a committee, composed of Mr Farrugia, Mr Mifsud Bonnici and Mr Rosso, will aim to identify further investment opportunities in which the company may engage going forward.
Malita’s IPO will be the first issue of shares by a government-owned entity since the one for MaltaPost in 2008.