Shareholders in company that bought €26 million of non-performing loans from BOV to face criminal charges

Two shareholders in the company that bought a €26 million portfolio of non-performing loans from BOV in late 2023 are expected to face criminal charges in connection with the hospitals scandal.

Lawyers Kevin Deguara and Jean Carl Farrugia had provided legal services for some of the parties involved in the complex web surrounding the privatisation of public hospitals, possibly one of Malta’s biggest-ever corruption cases, that this week led to the first-ever filing of criminal charges against a former prime minister and senior government officials.

Dr Deguara and Dr Farrugia were included in the second batch of charges filed by the Attorney General, together with other high profile individuals, including former Health Minister Chris Fearne (who has just announced his resignation from Cabinet and as Deputy Prime Minister) and former Finance Minister and current Governor of the Central Bank of Malta Edward Scicluna, as well as top civil servants.

BOV, Malta’s largest bank, is commercially exposed to the deal, having extended a €36 million Government-guaranteed loan to Steward Healthcare, the company that took over the hospitals concession from Vitals Global Healthcare.

Although the deal was annulled in Court last year, Justice Minister Jonathan Attard had told Parliament that the private healthcare operator was keeping up with its repayments to BOV. It is not known whether that is still the case as Steward filed for bankruptcy in the US earlier this week.

BusinessNow.mt understands that the loan to Steward Healthcare was not part of the packet of non-performing loans that the bank sold last year, for reasons outlined further below.

The sale of over 700 non-performing loans to 3514 Capital SCC for €26 million was described by BOV as “a first in the local banking sector”, but had previously raised eyebrows due to former bank chairperson Deo Scerri’s involvement in one of the acquiring company’s investment advisory committees. He is listed under 3514 Capital’s Governance Team as Committee Chair – Special Servicing.

3514 Capital SSC is a subsidiary of 3514 Capital Partners, in which DF Consultancy Services Ltd holds a 37 per cent shareholding. The remaining shares are held by Polymath & Boffin Ltd, a business advisory firm owned by Christopher Vella.

The DF companies and practice, especially DF Advocates, will be familiar to anyone following local business and political developments closely, being involved in a number of major developments in both fields in recent years.

Led by Kevin Deguara and Jean Carl Farrugia, DF Advocates had represented Pilatus Bank, a financial institution that has since been shuttered after being accused of serious money laundering and sanctions-busting allegations. The bank was central to the still-controversial Egrant case, about a secret offshore company set up by accountancy firm Nexia BT.

DF Advocates also provided legal advice to Sadeen Group, the Jordanian development company behind the troubled American University of Malta, with Dr Deguara representing the foreign company as far back as May 2015.

The firm – then known as Deguara Farruga Advocates – was even the beneficiary of former Economy Minister’s Chris Cardona’s intervention in a tender adjudication process, which led to the resignation of the Privatisation Unit’s chairman, Emanuel Ellul, in the first months of the new Labour administration in 2013.

The law firm also represented companies forming part of VGH Group, the original concessionaire of the hospitals, as confirmed by Dr Deguara when it was ordered to hand over its client file to the police as part of a magisterial inquiry.

Dr Deguara also shows up as a director of several companies within Dizz Group, including Dizz Finance plc and D Shopping Malls plc.

Together with Dr Farrugia, he also controls minority stakes in The Convenience Shop and in the recently opened Kalkara retail and residential Shoreline development.

Many of the pair’s investments are alongside DF Group CFO Kenneth Deguara, who is also facing charges in the hospitals case.

As to whether the €36 million loan extended by BOV to Steward was part of the transaction with 3514 Capital, BusinessNow.mt reached out to both Bank of Valletta and Christopher Vella, the only 3514 Capital shareholder not facing criminal charges, for more information.

A BOV spokesperson told BusinessNow.mt that the bank cannot comment on any client, current or former, describing confidentiality as “an overarching principle” that the financial institution is bound to observe.

While stressing that he is similarly legally prevented from directly answering the question posed by this business newsroom, Mr Vella pointed to a series of factors – including the timeline of when Steward could have started trading in difficulty, the period of time a debtor has to non-perform before being classed as a non-performing loan, and the level of provisioning required for non-performing loans of different vintages – that would lead one to understand that the transaction did not include BOV’s loan to Steward.

Mr Vella further explained to BusinessNow.mt the process by which non-performing loans (NPLs) are typically traded: “A process for NPL sales to be done is lengthy. Following a selection being proposed for sale on a no names basis by a bank, a bid process is done. The selected bidder then gets to conduct an in-depth analysis of all factors that constitute the quality of the debt asset, based on which a final transaction is established.

“Once a transaction is in place, the parties are certain a transaction can in fact be made, and the related operations and public bureaucracy for the transfer of assets commences. In jurisdictions that are highly experienced in the field, a transaction involving a high number of NPLs is generally expected to be concluded in a year, unless complications arise. For Malta this was a first.”

BOV has previously informed the market that “90 per cent of the portfolio comprised of loans and facilities that have been in default for five years or longer.”

3514 Capital Partners meanwhile describes the portfolio as “non-performing loans secured by real estate collateral, and offers a diversified portfolio of investment strategies focused on highly secured receivables, such as discounted bridged, non-performing, and unlikely-to-pay receivables.”

On its website, it says that the portfolio’s “highly secured structuring, covered by warranties and representations, guarantees the value of the acquired receivables and collateral.”

The fund holding the non-performing loan portfolio is managed by AQA Capital and administered by Calamatta Cuschieri Fund Administration. A related company of the latter, Calamatta Cuschieri Moneybase, on Friday (yesterday) terminated its agreement with DF Consultancy Services, which previously served as its corporate advisor.