The establishment of Malita Investments plc, the investment holding company mandated to acquire, develop and manage strategic real estate, will ensure a structure that allows future national projects to be realised, chairman Kenneth Farrugia has insisted.
The company has a clear conflict of interest policy
Directing government spending towards new national projects will be increasingly difficult under recently revised eurozone debt-to-GDP ratios, Mr Farrugia told The Times Business this week.
Critics have accused the government, which will maintain a 70 per cent stake in the company unless otherwise decided by Parliament, of resorting to creative accounting to fund projects as Malita Investments’ accounts are not consolidated with the state’s. Mr Farrugia however insists the creation of Malita Investments was a sensible strategy to follow.
“What is wrong with having a sovereign wealth fund ‘lookalike’ which is in a position to independently fund national projects as against the legacy system of funding them from the government’s coffers?” he asked. “Malita’s business is at arm’s length, there is more focus, more ownership from the public. Malita will be on the Malta Stock Exchange’s official list which requires full transparency.”
Malita Investments’ founding assets include the land occupied by Malta International Airport and Valletta Cruise Port. The new Parliament building and the open-air theatre at the capital’s City Gate will be the first projects the company will undertake. As soon as Malita gets off the ground, new projects will follow, Mr Farrugia pointed out.
Malita Investments plc, which was established in June last year, is to issue 20 million ordinary ‘B’ shares at a nominal value of €0.50 each to the public with a further over-allotment of 10 million ordinary ‘B’ shares. The issue price is of €0.50.
Subscriptions to the €15 million initial public offering will open on July 23 and close the following Friday. The shares will be listed on the stock exchange on August 16, with trading starting the next day. Mr Farrugia said there has been some take-up already.
The IPO, Mr Farrrugia explained, falls under the government’s objective to have public-private partnerships to fund not only state-owned projects but also other commercial projects.
Malita’s is a straightforward business model with long-term contracted agreements ensuring inflows and clear finance cost as outflows. With a lean administrative structure involving an accounts manager and another executive yet to be recruited, administration costs are relatively low. And there were considerable opportunities ahead, Mr Farrugia said.
The government has made a direct investment of €25 million and an additional €68 million in shares in return for the transfer of the ground rents of MIA and VCP. It has taken out a €40 million loan from the European Investment Bank, will raise €15 million from the IPO, and earn €3 million from operational cash flow. It has four revenue streams: the lease payments for the parliament building and open-air theatre, and the ground rents for MIA and VCP. Its outflows are the repayments of the EIB loan.
Mr Farrugia pointed out the EIB has indicated it would be keen to explore similar projects with the company.
A major opportunity awaits when the emphyteusis expires for the land at MIA and VCP in sixty years’ time. Malita will be in a position to command a premium during discussions with the operators about their intentions to continue their business.
“Malita is a vehicle that can be used by whichever government to independently fund national projects or other projects on a public-private partnership basis, or issue bonds to the public,” Mr Farrugia explained.
The board’s dividend policy to distribute between 60 and 75 per cent of profits was perfectly realistic and deliberate, he added.
Malita Investments plc is positioned as an equity income investment to satisfy investors’ appetite for income, able to offer a competitive dividend yield of seven per cent in keeping with commercial property yield trends.
Mr Farrugia emphasised that the company was not running any project risks. The cost of the new parliament building and the theatre are capped at €82 million in the contracted agreement with the government.
“The fact that the parliament and the theatre do not generate revenue is not an issue for Malita,” he insisted. “We consider a project from an investment point of view. The payments of the parliament building and the open air theatre as a percentage of the value are at arm’s length – 6.3 per cent of the value. The yields we are deriving from the two projects are commercial yields. The government is a lessee, leasing Parliament from Malita.”
Mr Farrugia, a Bank of Valletta chief officer and chairman of Finance Malta, brushed aside suggestions that the Malita Investments board bears a strong BoV influence. The board includes Middlesea Insurance’s former vice-president for operations Anne Marie Tabone (the bank has interests in the insurance group) and accountant Frederick Mifsud Bonnici who has recently retired from PricewaterhouseCoopers. Some press reports recently tipped Mr Mifsud Bonnici as the bank’s next chairman.
“We scoured the board-ready talent pool to ensure Malita had a board with the necessary skill set for governance and good practice,” Mr Farrugia said. “The company has a clear conflict of interest policy. If there are future issues which may materially hamper a director from fulfilling duties, we will review his or her position.”
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