How the PN fell into a Media.Link financial black hole

The Nationalist Party is in financial trouble, and the audited accounts it published this week suggest it is struggling to dig itself out of its money pit.

The party’s latest financial statements show liabilities of roughly €11.7 million and a pattern of losses that has persisted across most of the past decade.

But that is only the headline.

The bigger structural risk - and one that is kept hidden – lies in the financially toxic relationship the PN has with its media arm, Media.Link Communications.

Media.Link operates the party’s TV and radio stations (NET TV and NET FM), the news site netnews.com.mt, and the newspapers In-Nazzjon and Il-Mument. It also functions as a recurring sinkhole for party finances.

A write-off machine

Every year for the past nine years, the PN has written off anything from €600,000 to €1.9 million per year in money it has allocated to Media.Link and related controlled entities. Between 2016 and 2024, those write-downs add up to more than €10 million.

In accounting language, these are “impairment” charges. In plain language, it is money that the party has accepted it will not recover.

But the party cannot just walk away from Media.Link, because it stands to lose millions if the company fails to meet its obligations to creditors.

A guarantee that keeps growing

The accounts indicate that the PN has had to provide banks with guarantees connected to Media.Link borrowings. In 2016, the PN's guarantee stood at around €4.5 million; by 2024 it had risen to around €7.5 million.

The direction is clear: exposure tied to Media.Link has grown, not shrunk. The underlying problem has not been solved, though former leader Bernard Grech claimed earlier this year that the company would turn a profit this year.

We don’t know just how bad the Media.Link situation is, because the company has not filed audited accounts in 20 years. Although companies are required by law to file audited accounts on an annual basis, Media.Link Communications Ltd. has not done so since 2005 – Malta’s first full year of European Union membership. 

Party leader Alex Borg has now said he would like to publish the company's accounts "as soon as possible". 

The €7.5 million guarantee figure listed in the PN’s books is also potentially only a partial indicator of the problem: Media.Link may have other unpaid bills – from taxes to National Insurance contributions or utility bills – that would not be covered by a specific banking guarantee.

The result is a simple, but financially toxic dynamic. The PN borrows money to keep things ticking over, money flows into its media operation, and much of that money is then written off. Media.Link becomes a financial black hole.

Liquidity under stress

The situation could be manageable if the PN was operating as a profit-making machine and diverting surplus cash into its loss-making media arm.  

But audited accounts paint a picture of fragile profitability, and that fragility is now starting to show up in short-term liquidity.

The party has only recorded a surplus once in the past nine years, and that surplus was due to a one-off property sale. In 2024, the party ended the year with a €740,000 deficit. It is essentially finding it hard to generate any positive cash flow without selling its properties – the only hard assets it possesses. 

The challenge is evident when comparing the party’s current liabilities – debt it must pay within the next 12 months - to its current assets.

Between 2016 and 2021, the PN’s current assets exceeded its current liabilities. That changed dramatically in 2022, when its current assets fell to around €1.08 million, versus current liabilities of around €1.4 million.

Accountants look at the balance between these two figures to assess liquidity, and they do so by calculating what is known as an entity’s current ratio.

A ratio above 1 means a company has enough cash, or things it can quickly convert to cash, to pay its bills. Anything below means it is technically insolvent and relying on its creditors not to shut it down.

The PN’s current ratio in 2024 stood at 0.54. In other words, for every €1 the party owed that year, it only had 54c readily available.

Looking at the PN’s accounts on a year-by-year basis, the liquidity strain is not constant. In 2023, for instance, its current ratio stood at 1.22. But its 2024 ratio suggests the party is in a very tight short-term position, relying on its creditors and with next to no wiggle room if fundraising falls flat or costs rise unexpectedly.

Bleeding interest costs

Of the PN’s €11.7 million total liabilities, €10.2 million is in debt it owes creditors – debts that are costing the party €400,000 a year in interest payments alone. To put that into context, for every €1 the PN spent on its 2024 electoral campaign, it spent around €1.50 in interest payments to its lenders.

In 2022, party insiders had admitted that repayments were costing it a massive €2 million every single year. Debt servicing is suffocating the PN of the financial oxygen it needs to campaign.

The ċedoli creditors

One thing working in the PN's favour is that a significant share of its debt is owed to its own supporters, not banks, through its ċedoli scheme. Introduced in 2016, the scheme invited supporters to lend the PN up to €10,000 at around a 4% interest rate.

The PN has never explicitly said how much money it raised through ċedoli. But its accounts distinguish between bank borrowings and borrowings from third parties. Those line items indicate that, over time, the PN’s bank debt has declined while third-party debt has climbed.

In 2016, the PN owed banks about €3.3 million and third parties about €3.5 million. By 2024, bank debt had fallen to around €1.6 million, while third-party debt had ballooned to roughly €8.1 million.

This is a double-edged sword.

Party supporters may be patient creditors, but their sheer number could prove dangerous for the PN.

Ċedoli were announced in 2016 as a 10-year scheme. That suggests many will mature next year, and the party's accounts indicate that the over €3.8 million in loans the party owes will fall due at some point between now and next year.

When ċedoli loan periods expire, the PN will face a difficult choice: find cash to repay those supporters, or persuade many of them to refinance, perhaps at a higher interest rate.

But unlike a bank loan, which can be renegotiated with a single counterparty, renegotiating loans with a creditor base made up of supporters can be fragmented. That makes restructuring harder.

Spending that doesn't really fall

Despite a decade of strain, the PN has struggled to push down its spending.

Staff costs rose from about €350,000 in 2016 to around €420,000 by 2024 - broadly in line with inflation over that period. But administrative expenses grew faster, rising from roughly €200,000 to about €410,000 last year.

That doesn’t necessarily mean the party is being wasteful, but it makes it clear the party’s fixed operating costs remain high.

It also has some major bills due: a massive €582,000 in social security contributions and other taxes to pay this year, despite having just 15 employees, stands out as especially concerning. 

What about Labour?

The Labour Party is not a paragon of financial health either. Its accounts suggest it is asset-rich but can be cash-tight, relying on bank overdrafts to keep its day-to-day operations ticking over.

Labour, though, appears to have some structural advantages over the PN.

Its media arm, ONE Productions, is not showing the sort of annual write-offs Media.Link is registering on the PN’s books, based on how each party’s accounts present impairments and valuation. As with Media.Link, we only have a partial picture of ONE: the company has not filed audited accounts since 2015.

Labour also has an edge over the PN in other areas, too. Its property portfolio is worth significantly more (€37 million vs €16 million), it has less than half the PN’s debt (€4.4 million vs €10.2 million) and it spends a fraction of the PN’s annual cost on servicing that debt (€120,000 vs €400,000).  

That means the Labour Party can afford to amass a war chest and spend big when it matters – during elections.

Opaque by design

Both parties remain heavily dependent on donations and fundraising.

In the PN’s case, the problem is more acute because it needs inflows of cash from fundraisers to service its debt and Media.Link.

Labour, though, is also highly reliant on fundraising cash. It tends to raise more than the PN – roughly 20% more every year – and its total donation amounts tend to fluctuate less each year.  

And both parties seem to have found a neat way of sticking to the letter of party financing rules while disregarding their spirit. They aggregate millions in donation revenue as aggregate collections from mass event fundraisers, with literally just a handful of donations in the past decade being high enough to require detailed disclosure.

They extend that same opacity to their media subsidiaries, Media.Link and ONE Productions. Both are technically legal entities, but in practice, the parties can use them as financial black boxes, ignoring laws that require companies to file audited accounts each year.

For Labour, the big questions concern its financing transparency. As the ruling party, it has leverage – in the form of political power – that it could use to fuel its party finances. Is it using that power of incumbency to fuel its party finances?

For the PN, the questions are more existential. It has sunk over €10 million into Media.Link with no end in sight, has even bigger direct liabilities of its own and a ċedoli repayment deadline on the horizon. It must meet these financial obligations while also fulfilling its political ones. Can an Opposition fight its battles while in financial handcuffs?