Financial analysis: Does Prospects have a future?

It has been almost a decade since the launch of Prospects by the Malta Stock Exchange (MSE) in February 2016. While in recent years, there has been a surge in new bond issuance on the regulated main market of the MSE (regulated by the MFSA), there is an evident lack of appetite for new issuance on Prospects.

With a number of bonds on Prospects now approaching their maturity date, while other issuers have ventured onto the Regulated Main Market, the future of Prospects is questionable, especially given current developments across the bond market.

Firstly, it is worth clarifying that Prospects is not a regulated market in terms of the Markets in Financial Instruments Directive (MiFID). Prospects is a multilateral trading facility (MTF) operated by the MSE and serves as a trading platform for debt and equity securities issued by companies. It is primarily targeted at start-up companies and small and medium-sized enterprises (SMEs).

In Malta, there are three regulated markets, namely (i) the Official List (also referred to as the regulated main market); (ii) the junior market, which is referred to as the Alternative Companies List (ACL); and (iii) the International Financial Securities Market, which lists wholesale-denominated debt securities, i.e. bonds with a denomination of over €100,000.

The process of obtaining a listing of equity or debt securities on a regulated market involves the approval of a prospectus and other documentation by the MFSA. On the other hand, in terms of the Prospects rules, an applicant is not required to issue a prospectus but instead must publish an ‘Admission Document’ with the assistance of an approved corporate adviser. Currently, there are only seven corporate advisers, as 11 other companies have terminated their licence over the years.

Given the strong growth in the bond market over recent years, the possibility of an eventual default is evident, irrespective of whether these issuers are on the regulated main market, on Prospects, or have unlisted bonds

There are 18 debt securities currently on Prospects, totalling circa €75 million, and one equity (Best Deal Properties Holding plc). Also worth noting is that since 2020, only two new companies have been admitted to Prospects, namely Class Finance plc and Hart Capi­tal Partners Europe plc, both in 2022. Over the years, there were some issuers who refinanced their bonds on Prospects via new bonds on the regulated main market.

In this respect, at the end of July, HH Finance plc also indicated it would be performing a similar exercise via the launch of a new bond issue of €27 million, which will be partially used to redeem the €5 million in bonds currently on the Prospects MTF List, subject to approval by the MFSA.

The bonds on Prospects range in size from an amount of €1 million by 9H Capital plc to €8 million by Luxury Living Finance plc.

Most of these bonds are maturing in the coming years, with one of these up for redemption in the next few days. In fact, certain sections of the media recently gave prominence to the upcoming €2 million bond redemption of Yacht Lift Malta plc since the company had not published its financial statements for over two years, and in terms of the Prospects rules, trading in these securities has been suspended for over a year.

Until recently, the last announcement by the company was in April 2024, wherein it informed the public that the shareholders had injected a further €250,000 in share capital. The company has now convened a meeting for holders of their bonds for tomorrow, September 12, to consider and approve the redemption of the existing bonds via the issuance of new bonds.

The announcement makes reference to a private placement memorandum dated August 29, which is not publicly available. This essentially means that those existing bondholders who approve the exchange offer will have unlisted debt securities rather than bonds that may be tradeable on Prospects.

The unlisted bond market is another avenue that has also grown in popularity recently. Over the years, some companies that had bonds listed on either the regulated market or Prospects instead resorted to placements in unlisted bonds to raise additional funding.

It is undoubtedly a very tough time for the bond market. Apart from the difficulties being faced by some issuers on Prospects, there are other issuers on the main market that are also announcing their own particular challenging circumstances. Over the past year, there were several announcements by Mediterranean Maritime Hub Finance plc on their need to attract new partners ahead of their bond redemption next year.

More recently, there were other important notifications by Central Business Centres plc (in terms of an extension of their unlisted bonds of €3.25 million due on August 31, 2025), MIDI plc and Shoreline Mall plc. Incidentally, these companies are among several others that have bond redemptions due in 2026 (totalling almost €370 million). As such, updates from these companies are instrumental to understand their abilities to honour their obligations.

Invariably, given the strong growth in the bond market over recent years, the possibility of an eventual default is evident, irrespective of whether these issuers are on the regulated main market, on Prospects MTF, or have unlisted bonds. While this will invariably lead to challenges for the capital market, it may have some positive repercussions for the investing public.

Investors must remain cognisant of the importance of either undertaking their own assessment of the financial strength of a company or seeking professional assistance before undertaking any investment, irrespective of the venue of the listing or otherwise of a debt instrument.

Although the availability and distribution of such financial instruments have become widespread and easy to subscribe to, being selective and remaining highly vigilant is the right strategy in these circumstances.

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