Bond redemptions in 2025

Malta’s bond market has grown remarkably over recent years indicating both the important role of the capital market as a complementary means of finance for many companies as well as the over-riding preference for fixed-income securities by the local investor community.

During 2024, the total amount of corporate bonds that would have been issued on the Regulated Main Market of the Malta Stock Exchange of €437 million represents a steady increase from last year. The record issuance was of circa €470 million during 2022 as a number of companies tapped the bond market in the first half of that year just before the surge in interest rates across the eurozone following a decade of historically low interest rates.

The size of Malta’s corporate bond market has now grown to €2.8 billion. The six largest issuers with total bonds in issue of at least €100 million account for 47 per cent of the overall market totalling €1.3 billion. The Corinthia Group (incorporating International Hotel Investments plc, CPHCL Finance plc and Mediterranean Investment Holdings plc) remains the largest issuer with total bond issuance of €390 million followed by the Hili Ventures Group (incorporating Hili Finance Company plc, Premier Capital plc and Hili Properties plc following the redemption of the 1923 Investments plc bonds earlier this month) with total bond issuance of €352 million.

Bank of Valletta plc is the third largest issuer with total bond issuance of €261.6 million. This year, BOV very successfully issued the single largest bond in Malta at €100 million as part of its €250 million Unsecured Euro Medium Term Bond Programme.

While there is no indication currently of the number of bond issues that may be offered throughout the course of 2025, the amount of corporate bond issuance is also dependent on the number of bonds maturing in any calendar year. There are a few issuers whose bonds are due to mature next year and who may inevitably decide to refinance through the issue of new offerings.

Although some investors regularly criticise the fact that companies refinance maturing bonds through the issuance of new debt by arguing that this indicates a company is in a weak financial situation, this is a common phenomenon even overseas. This argument must be seen in the context of the specific company in question and the nature of its business activities. Companies with assets generating long-term recurring cashflows should inevitably always optimise their capital structure by having long-term borrowings in place and the structure of the bond market is the perfect avenue for such an initiative.

The largest amount due for redemption next year amounting to €45 million is a bond issued by International Hotel Investments plc (IHI). Due to the nature of its business activities, the company was heavily impacted by the COVID-19 pandemic which coincided with a period of sustained investments in a number of countries due to new hotel openings in New York, Bucharest, Brussels and Rome.

Moreover, IHI continues to be impacted by the ongoing difficulties operating within Libya and the Russian Federation and the fluctuations of their respective currencies. The financial statements over recent years clearly indicate the increased borrowings of the IHI Group. The Financial Analysis Summary published in June 2024 indicates that IHI is expected to end this year with a net debt figure of €733 million compared to €530 million in 2019, with net finance costs rising to over €40 million in 2024. This will be an important focal point by the investing community when IHI approach the market in the coming months to refinance (in part or in whole) the €45 million due for redemption in May 2025.

While IHI’s new openings this year and in future years will inevitably lead to improved revenue streams, there will be increased scrutiny on the strategy of debt reduction by virtue of sales of assets as highlighted by IHI’s Chairman Alfred Pisani in his statement in the 2023 Annual Report.

Mr Pisani had claimed that “net proceeds from sales of assets will be deployed exclusively towards paying down debt we took on during the pandemic” as the Group aims to achieve a “goal to balance our net debt versus EBITDA to a multiple of a maximum six times”.

Another large bond redemption due in October 2025 amounting to €37 million is by Hili Properties plc. The projections published some months ago by Hili Ventures Ltd, as the majority shareholder of Hili Properties, had envisaged that this bond will be repaid in full as it anticipates to dispose of properties valued at just over €60 million by the end of 2025. Earlier this year, the company had already confirmed that it sold a retail complex in Latvia for €7 million. Hili Properties has a portfolio of 23 properties currently valued at €229 million.

Given the ongoing strength in the financial performance of the Hili Ventures Group (EBITDA forecasted to climb to €142.6 million in 2024 and rise to €160.6 million in 2025) coupled with its dynamic nature and overall ambitions (as evident from the takeover of Tigne Mall plc), it is possibly too early to gauge whether Hili Properties will indeed simply repay the bond or continue to expand its property portfolio and combine new acquisitions with the bond refinancing exercising in the second half of next year.

6PM Holdings plc had issued a €13 million bond in July 2015 and shortly afterwards the company had been taken over by the UK-based Idox plc. The shares of 6pm Holdings plc were subsequently delisted from the MSE. This bond is due for redemption in July 2025 and it is possibly unlikely that this will be refinanced via another bond given that the Idox Group has no major business operations in Malta.

During the course of next year, there are another two small issues that will undoubtedly be redeemed. These are marginal amounts by Izola Bank plc (€3 million due on 30th June 2025) and Central Business Centres plc (€2.9 million due on 30th December 2025).

Moreover, there are a number of callable bonds in issue that may also lead to some issuers refinance their bonds during 2025. In fact, earlier this month, Together Gaming Solutions plc confirmed its intention to issue €12.5 million in new bonds and to offer the holders of the existing €14.8 million bonds due between 2024 and 2026 the option to subscribe for the new bonds in exchange for the cancellation of their existing bonds.

Apart from possible refinancing of some of these bonds being redeemed over the next few months, there are possibilities of increased issuance from other companies also as a result of the declining interest rate environment across the eurozone following the surge in rates between 2022 and mid-2023. BOV should also be expected to issue another tranche of its medium term note programme as it continues to optimise its capital allocation between Tier 1 capital and Tier 2 issuance.

Moreover, also in the fixed-income space, there will also be elevated issuance by the Government of Malta in 2025 since it requires €1.5 billion in new MGS issues to refinance existing debt being matured of €0.6 billion and new borrowings of €0.9 billion to finance the projected deficit.

As I have regularly stated in the past and more specifically in a recent article on commonly-used bond market methodology, investors need to base their investment decision on the financial strength and soundness of a company issuing a bond and not be simply guided by the interest rate being offered. Financial intermediaries have an important role to play in this respect given the weak investment knowledge that remains prevalent among many parts of the retail community.

Read more of Mr Rizzo’s insights at Rizzo Farrugia (Stockbrokers).

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