On 13 March 2018 Global Capital plc issued a company announcement stating that it had submitted a bid to Cyprus Popular Bank for their substantial shareholding in Lombard Bank Malta plc. The announcement and media reports quoted Global Capital plc chairman, Professore Paolo Catalfamo stating that York Capital, one of thousands of private equity funds, was financially supporting his company’s offer for the Lombard shares. However, barely 24 hours after the company announcement came York Capital’s unequivocal denial of Professore Catalfamo’s claim of York’s involvement.
When questioned about this clear rebuttal, Catalfamo simply attributed his company’s misleading public announcement to Globe having acted ‘prematurely’. Such a dismissive and superficial explanation is unacceptable more so coming from a publicly listed and regulated financial institution. Our Market Abuse Regulations and Malta Stock Exchange Listing Rules are specific and strict when it comes to keeping the market properly and clearly informed.
Consequently Professore Catalfamo and his board of directors are now duty bound to provide a truthful and unequivocal clarification to both the public as also to the regulators as such seriously misleading company announcements can cause irreparable damage to listed companies and to the Malta Stock Exchange itself.
Maltese laws are very specific on acquisitions of a qualifying shareholding in a credit institution. Professore Catalfamo now says that in January 2018 his company made an offer for the shareholding in question. Such an action required notification to the Malta banking regulator and also the issue of a company announcement. Whereas we will never know whether the banking regulators were indeed informed, there is no doubt that Global Capital plc did not issue a company announcement in January 2018. This matter calls for an explanation.
Global Capital plc has been present on the Malta Stock Exchange for a number of years. Its performance has lacked any form of lustre and has not been particularly popular with the investing public, especially the small investor. Indeed, whereas one should always ignore rumour or malicious talk, there’s no doubt that Global Capital plc deserves to be looked at closely and a few questions asked. Given the company operates in a highly regulated industry, an evaluation of its recent development and state of play is called for.
It was recently announced that the company’s CEO was stepping down from his post. He had been appointed in 2014 and no reason for his departure has been given. The responsibilities of CEO have been assumed by the incumbent chairman Professore Catalfamo and the role of chairman has now been made executive. In Malta it is not the norm for a financial institution to merge the roles of chairman and a CEO. Indeed, it is considered good corporate governance for the two roles to be kept separate
Going by the Group’s websites it seems that Professore Catalfamo controls Investar plc, which owns a controlling stake in Global Capital plc. Professore Catalfamo also sits on the, Nomination, Remuneration and the Investment Committee of Global Capital plc. This represents significant concentration of power, and one that is not the norm in a publicly listed financial institution.
According to the latest full-year published accounts of the company the former CEO was the only other member of the Investment Committee apart from Catalfamo. It is indeed surprising that an Investment Committee is composed of just two members one of whom effectively being the controlling shareholder.
Global Capital’s activities include the sale of life insurance policies and related products. These products provide security for policyholders and financial institutions. It is therefore critically important that the premiums received in respect of these products, are invested in a manner that directly addresses any related potential future claims so as to protect policyholders. Corporate governance and compliance procedures therefore need to be watertight and beyond any doubt
On 30 August 2017, in its interim report the company stated the following: “Moreover, through the motions of the Extraordinary General Meeting held on the 23 June 2017, the Company increased its authorised share capital from eighty five million ordinary shares to two hundred million ordinary shares of €0.291172 each. It is the Board's intention to exercise its existing authority to issue new ordinary shares by conducting a rights issue in respect of an amount of shares not exceeding €15,000,000 in nominal value before the end of the year, subject to the approval of the Listing Authority.”
This was stated under the heading ‘Achieving long term financial stability.’ Long-term financial stability is indeed the vital attribute for a financial services company such as Global Capital plc.
However on 28 December 2017, the company made the following announcement:
“The Company makes reference to its half-yearly report for the period ended 30 June 2017, published on 30 August 2017, in which the Company announced the Board’s intention to conduct a rights issue in respect of an amount of shares not exceeding €15,000,000 in nominal value before the end of 2017. During the last quarter of 2017 the Company continued the process of redefining its business strategy in the context of its plans to strengthen its position in the local insurance market and to passport its insurance products in other EU jurisdictions, while at the same time preparing itself for the implementation of the Insurance Distribution Directive in the course of 2018. The redefinition of the Company’s business strategy, which is expected to be finalised in the first half of 2018, is likely to affect the Company’s optimum capital levels. As a result, the Board has decided that it is in the best interests of the Company and its shareholders as a whole to postpone the proposed rights issue until such time as the capital plans underpinning its renewed business strategy have been adequately defined in the light of the evolving business and regulatory environment. The Board, therefore, expects that the Company will be conducting the proposed rights issue during the course of 2018 to raise such amount of capital as may be determined to be appropriate by the Board, subject to the approval of the Listing Authority.”
This explanation is somewhat perplexing.
The initial reason given for the capital raising was ‘Achieving long term financial stability’. That objective presumably remains, so the question is how was this objective influenced and diminished in respect of timeliness by a redefinition of the Company’s business strategy? The Insurance Distribution Directive (IDD) was published in February 2016. The company was therefore aware of it in August 2017, i.e. at the time when the capital raising was announced. This was set to be transposed into national law by February 23rd 2018. Unless the €15m original target announced is now considered as possibly excessive, it is not clear why the fund-raising exercise has been postponed.
It is even more evident that the original objective of long-term financial stability remains valid, and that the company’s shareholders will be asking themselves whether and how further capital stands to be raised.
Global Capital has some prior history in respect of corporate stress also in the Professore Catalfamo era.
On 3 April 2015 the company was informed of the appointment of conservators of BAI Co. (Mauritius) Ltd by the Financial Services Commission of Mauritius. BAI held 48.45% of the ordinary shares of Global Capital plc at the time. Global Capital then noted that the business and operations of the Global Capital Group were totally separate and distinct from those of any of its shareholders, including BAI, and that the appointment of conservators of BAI did not relate to the business, operations or assets of the Global Capital Group.
On 22 April 2015 the company noted that while its business and operations were separate and distinct from those of BAI the decision of the Authorities in Mauritius to appoint conservators to BAI had created uncertainty on the operations of the company.
On 6 May 2015 the company applied to the Malta Listing Authority to request an extension until 31 May 2015 to consider and approve its Annual Financial Report for the financial year ended 31 December 2014.
On 4 September 2015 the required quorum was not present at the Annual General Meeting.
On 16 September 2015 the company was informed by EIP (now Investar) that it was still intent on acquiring a shareholding in the Company (this followed a failed attempt to acquire BAI’s interest) and that EIP remained intent to support the company up to the sum of €15,000,000 in any capital increases which the Company intended to make. This undertaking served as a justification for the continued adoption of a “going concern basis” in the preparation of the company’s Financial Statements and in the Interim Report.
On 1 April 2016 out of 16.8m shares offered in a Rights Issue, only 1.6m were initially taken up.
On 30 May 2016 the company extended the offer period for a €10m bond issue. In Malta bond issues are typically snapped up. This particular issue was promoted in such a way that it did not dissuade potential investors from treating it as ‘underwritten’. However, there were no formal pledges in this respect. In fact, even the 2015 audit report drew attention to this issue.
In 2014 there was an Emphasis of Matter Clause included in the Annual Report reading:
“Without qualifying our opinion, we draw attention to Note 1 to the financial statements which details the company’s financing plans, in particular those in relation to the company’s bond redemption obligation due by not later than 2 June 2016. The success of these plans, which is fully dependent on funding from external investors, can only be determined at a future date. These circumstances indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.”
In 2015 the auditor was unable to confirm the appropriateness of the “going concern” assumption when stating:
“We have not been provided with sufficient appropriate audit evidence of cash or other liquid assets for the full amount of €10M that would be used if necessary over the coming weeks to support the shareholders’ commitments mentioned by the Directors in Note 1 to the financial statements; There are no formal pledges or equivalent arrangements in place over any assets that would underlie the €10M commitments made to the Company.
“We requested the Company whether they are able to obtain further assurances regarding the basis of the shareholders’ commitments, but we were informed that no such further assurances were available by the time of issue of this audit report. As a result of the above, we were unable to obtain sufficient appropriate audit evidence at the time of issue of this audit report about the appropriateness of the Directors’ use of the going concern assumption in the preparation of the financial statements.”
One also asks whether the Global Capital group has made adequate provisions for the many claims that it is facing before the Financial Services Arbiter. So far the Arbiter has awarded thousands of euros in damages to victims of investment mis-selling by members of the Global Capital group. Furthermore in July 2017, an administrative penalty of €20,000 was imposed by the MFSA on Global Capital Financial Management Ltd in terms of the Investment Services Act. More cases are awaiting hearing or judgement as can be viewed on the MFSA website.
Unfortunately Professore Catalfamo’s professional biography is not available on the Global Capital website, nor indeed is that of any of the other directors - some of whom merit a photo, while others apparently do not. Judging by what is available on the Internet it would seem that his is a colourful history. For example, previously he was part of the management team at Czech Union Banka, which ceased operations in 2003 with almost a quarter of a million customers left in distress. Invesmart had taken over the bank in October 2002 and pledged to settle the liabilities. Professore Catalfamo headed Invesmart when he claimed that he was in talks with a number of investors over a possible rescue package.
One asks whether these facts were transparently declared in the Personal Questionnaire submitted to the regulators by all directors of financial institutions.
The commonality between Global Capital and Investar is that the former is dependent on the latter, that both are controlled by Professore Catalfamo and that both seem to require long term funding.
Full visibility and disclosure of a company’s plans are not a concession but a right of each and every shareholder no matter the amount of the shareholding.
They say that there’s ‘honour among professori’, but at Globe it’s the small shareholders who need to be honoured and respected as they are the ones who cannot take care of themselves.