In recent weeks, I have delved into issuers whose bonds are listed on the Regulated Main Market of the Malta Stock Exchange operating in the hospitality industry, the property deve­lopment sector and commercial pro­perty sector. It is evident that the various issuers  represent a large portion of the overall bond market and as such, given the challenges posed by COVID-19, it is important for investors to closely monitor developments across these sectors.

Meanwhile, the maritime sector has been growing in importance over the years and currently there are four issuers with total bond issuance of €88.5 million, namely Endo Finance plc, Grand Harbour Marina plc, Mariner Finance plc and Virtu Finance plc.

Most of issuers operating in the maritime sector do not seem to be impacted as negatively as those in hospitality, property development and commercial property. None­theless, it is still important for investors to monitor the credit metrics of these companies to gauge their overall creditworthiness. Since in most cases the level of EBITDA generation will be relatively strong, the net debt to EBITDA multiple remains an appropriate ratio to gauge a company’s ability to repay its borrowings over the years.

Endo Finance plc issued a €13.5 million bond in Q1 2019. Endo Finance is the financing arm of Endo Ventures Ltd – the parent company of the Endo Group. Through its various subsidiaries, the Endo Group is in the business of chartering commercial vessels, providing ship-to-ship services, ship management services and also property leasing. There are three guarantors for the bonds in issue (namely International Fender Providers Ltd, IFP International Fender Providers Ltd and Endo Properties Ltd) which are all subsidiaries of the parent company Endo Ventures Ltd.

During 2020, revenues are expected to increase by 74.3 per cent to €9.67 million, mainly reflecting a full year’s contribution from the Endo Breeze vessel, which was acquired in May 2019, a one-off surge in revenue from IFP Malta, and the acquisition of another vessel, Endo Sirocco, concluded in September.

EBITDA is expected to amount to €3.47 million, representing a 55.3 per cent rise over the 2019 comparable figure of €2.23 million. Meanwhile, net profit is expected to shrink by almost half to €1.39 million (2019: €2.25m) given that the 2019 figure was boosted by a €2.24m gain from a revaluation of investment property. The gearing ratio is predicted to fall to 58.4 per cent while interest cover is expected to improve to 4.5 times compared to 3.4 times in 2019. Net debt to EBITDA is anticipated to improve to 4.1 times. But the 2020 forecasts do not take into consideration any further issuance of bonds.

The company announced on July 16 that it had submitted an application to the Listing Authority requesting the admissibility to listing of €28 million bonds carrying an interest rate of 5.125 per cent. However, no further announcements related to this planned issuance have been made since then.

Meanwhile, on October 15, the company published the Q3 financial performance of Endo Ventures Ltd, an interesting initiative that should be replicated by all bond and equity issuers to provide regular updates to stakeholders. From January to September 2020, the Endo Group generated revenues of €7.29 million and an EBITDA of €2.34 million, which are well within the forecasts for 2020.

Grand Harbour Marina plc is expecting revenues to drop by 7.6 per cent to €3.8 million in 2020 largely due to the disruptions brought about by the COVID-19 pandemic. EBITDA is expected to ease by 4.3 per cent to €1.62 million. GHM foresees ending the year with a cash balance of €4.19 million, and total borrowings are expected to remain virtually unchanged at around €20.9 million when including lease liabilities amounting to €6.17 million. The gearing ratio is anticipated to remain at the 85 per cent level.

On the other hand, given the expected drop in EBITDA, the net debt to EBITDA multiple is forecasted to deteriorate slightly to 10.3 times, while the interest cover is expected to remain stable at 1.9 times. In its updated financial analysis summary published in mid-August, it was explained that the project related to Phase 1 of the planned reconfiguration of the Vittoriosa Grand Harbour Marina is currently under way but the process of obtaining the necessary permits is taking longer than expected due to matters  outside the company’s control.

All bond and equity issuers [should] provide regular updates

Meanwhile, at the time of the publication of the interim financial statements at the end of August, the company explained that COVID-19 will continue to impact certain parts of its business, especially superyacht and pontoon visitors in both Malta and Turkey as well as reven­ues from landside activities in Turkey. However, the company again reaffirmed the position it stated in the announcement of April 2 that it has suf­ficient resources to meet all its payment obligations and its ability to redeem in full its current €15 million bond which matures in 2027.

Mariner Finance plc had approached the local capital market for the second time in June 2014 with a €35 million bond issue. The issuer is principally the holding as well as the finance and investment company for its main operating subsidiary SIA Baltic Container Terminal (BCT), which is engaged in the provision of port and related services in the port of Riga, Latvia, over which it holds a port concession licence expiring in April 2047.

Moreover, Mariner owns and operates a 3,880 sqm commercial and office building in Riga which as at December 31, 2019, was valued at €5 million. The issuer reported a consistently strong performance over the years, generating an EBITDA of over €8.5 million per annum with an interest cover of well over four times. The 2020 projections published in May were based on what the company claimed to be a “stressed scenario”, showing a decrease of 8.4% in BCT’s revenue to €15.2 million and a 29% drop in rental income to €0.4 million.

Mariner is expecting its EBITDA to decline by 11.8% in 2020 to €7.6 million, which will weaken the interest cover ratio to four times. The gearing ratio is expected to remain virtually unchanged at around 48%. Meanwhile, the net debt to EBITDA is expected to weaken to 6.0 times. The 2020 interim results published on August 28 indicate a 7.1% drop in total revenues to €8.2 million mainly due to the fact that volumes handled in the BCT terminal declined as a result of the COVID-19 pandemic.

The bonds that had been issued by Virtu Finance plc in late 2017 are guaranteed by Virtu Maritime Ltd. In view of the disruptions brought about by the COVID-19 pandemic, revenues during 2020 are anticipated to drop by 28.6 per cent to €31 million, in part compensated by the increase in charter income totalling €15 million following the extension of the lease agreement for the HSC Jean de la Valette till the end of 2020.

EBITDA is expected to decline to €13.7 million compared to €21.3 million in the 2019 financial year, and the guarantor expects to end the 2020 financial year with a cash balance of €11.8 million. Total borrowings (including lease liabilities forecasted at €7.77 million) are expected to remain virtually unchanged at €93m while net debt is anticipated to drop by 3.9 per cent to €81.2m. The gearing ratio is anticipated to improve to 51.8 per cent, while the net debt to EBITDA multiple is forecasted to deteriorate to 5.9 times compared to 4.0 times for the 2019 financial year. Likewise, the interest cover is expected to drop to 4.3 times compared to 7.5 times in 2019.

It will be interesting to monitor how Virtu will fare during the 2021 financial year following the decision to start a second route to Sicily and deploy the HSC Jean de la Valette between Valletta, Augusta and Catania beginning in the first quarter of 2021.

The company had stated in a press release that this new service is being launched in response to requirements of Maltese and Sicilian importers and exporters and would complement the existing Malta-Sicily route (between Valletta and Pozzallo) operated by their newest vessel – HSC Saint John Paul II. Moreover, following a foreign media report published a few weeks ago, it is being rumoured that another competing fast-ferry service may be launched in 2021 operating between Malta and Sicily.

The increased bond issuance by companies operating in the maritime sector in recent years is a positive development since it provided investors with an opportunity to diversify their bond portfolios away from the concentration on companies in the hospitality industry, the property development sector and those in the commercial property sector.

Hopefully, other issuers from the maritime industry will also seek to utilise the capital market in the future for their financing requirements.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, ‘Rizzo Farrugia’, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. 

© 2020 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.