‘Defaults are part of the risk’ for bond investors – finance minister
Says MFSA will ensure the trustee of this security carries out its duties
Defaults are part of the risks faced by bond investors, Finance Minister Clyde Caruana told parliament this week.
The bond market has been under increased scrutiny in recent weeks, as a number of companies appear to be under financial pressure.
Caruana said defaults are an inherent part of investing in capital markets and form part of the general risk that investors accept when investing in bonds.
The finance minister was responding to questions by Labour backbencher Edward Zammit Lewis, who asked whether measures are in place to mitigate the impact of a bond default on markets and investors.
Times of Malta has reported how companies, ranging from real estate firms Midi and Central Business Centres to retailers Dizz Group and maritime sector operators Mediterranean Maritime Hub and Yacht Lift Malta, have faced financial pressures ahead of scheduled bond repayments.
Stockbroker Edward Rizzo said recently that the strong growth of the bond market invariably raises the possibility of an eventual default.
“While this will invariably lead to challenges for the capital market, it may have some positive repercussions for the investing public,” Rizzo said in a Times of Malta column.
In reply to another question by Zammit Lewis, Caruana said companies listed on regulated markets are required by the financial regulator (MFSA) to inform investors of any financial difficulties they face, as well as the measures taken to minimise the risk of default.
Caruana emphasised that transparency and communication by companies help prevent wrong information getting out and panic in the market.
In the case of bonds secured against a particular asset, the finance minister said the MFSA will ensure the trustee of this security carries out its duties.
Caruana said it is the MFSA that scrutinises and approves bond issues on the regulated market. This evaluation process looks at the company’s financial strength, corporate governance and transparency.