The amount of corporate bonds issued on the Regulated Main Market of the Malta Stock Exchange declined during 2023 from the record issuance of circa €470 million during 2022.
This ought to have been expected as a result of the steep rise in interest rates by the European Central Bank during the first half of the year, with the deposit facility climbing from 2% at the end of 2022 (it had been at -0.5% until July 2022) to 3.5% by the end of June 2023.
In fact, total corporate bond issuance during the first half of 2023 was of only €101.6 million, with a notable pick-up during the past six months arising from sizeable bond issues by APS Bank plc, AX Group plc and International Hotel Investments plc, with another large bond issue expected to be imminently launched by Phoenicia Finance Company plc.
While there were 20 bond issues approved by the MFSA during 2022, these declined to 12 this year, assuming the Phoenicia bond is approved by year-end. Half of these issuers (APS Bank, AX Group, IHI, JD Capital, MIH and Phoenicia) had bonds already previously listed on the Regulated Main Market. Five issuers (Bonnici Bros Properties plc, Juel Group plc, ClearFlowPlus plc, Plan Group plc and GPH Malta Finance plc) are new additions to the corporate bond market in 2023. Meanwhile, AST Group plc can also be classified as a newcomer to the Regulated Main Market, although the company had previously issued debt via Prospects MTF.
Among the newcomers, it is worth highlighting that the ClearFlowPlus bond promoted by the Water Services Corporation was the first (and so far only) security admitted to the Green Bond List. Although the MFSA had approved the MSE bye-laws for the green bond market in February 2021, the only listing to date remains a government-controlled entity.
In view of the increased importance of sustainable finance, various fiscal incentives are clearly required to instigate privately-owned companies to consider the benefits of using the green bond market for their financing requirements following the weak appetite evident so far in this important area.
There is a clear opportunity to accelerate this growth in the future given the sheer amount of liquidity across the financial system
The size of Malta’s corporate bond market has now reached almost €2.6bn. The six largest issuers, with total bonds in issue of at least €100m, account for 46% of the overall market, totalling €1.2bn.
The Corinthia Group (incorporating International Hotel Investments plc, CPHCL Finance plc and Mediterranean Investment Holdings plc) remains the largest issuer with total bond issuance of €400m, followed by the Hili Ventures Group (incorporating 1923 Investments plc, Hili Finance Company plc, Premier Capital plc and Hili Properties plc) with total bond issuance of €308m.
Bank of Valletta plc is the third largest issuer with total bond issuance of €161.6m. However, it is worth highlighting the issuance by BOV of €350m callable senior non-preferred notes on the Irish Stock Exchange in early December 2022, with just over half this sizeable amount allocated to investors based in Malta.
As such, the actual amount of debt issuance by Malta’s largest bank is much larger than the figure indicated above when taking this amount into consideration. The three other notable issuers in Malta are AX Group plc (incorporating AX Real Estate plc), APS Bank plc and the GO Group (incorporating its subsidiary Cablenet Communications Systems plc).
An important development that emerged during the year was the issuance of a number of debt instruments which are not listed on the MSE. Details of these ‘unlisted bonds’ were publicised since all these companies already had instruments listed on the Regulated Main Market. There were five issues of unlisted bonds in 2023, totalling just below €21m excluding the most recent announcement by JD Capital plc of another imminent bond of €5m.
Since these companies issued the details of their private offerings through the MSE site as a company announcement, many investors questioned the rationale for carrying out issues of such unlisted bonds by highlighting the fact that one of the main benefits of the corporate bond market is the transferability of the bonds before maturity date via the secondary market of the MSE.
Moreover, these announcements ought to have attracted the attention of a number of investors due to the interest rates of above 7% from each of the last three issuers, namely Endo Finance plc, Von der Heyden Group and JD Capital plc.
One of the primary determinants of the size of new issuance next year will be the interest rate environment. Interest rate cuts by the major central banks in 2024 could instigate additional corporate bond issuance during the year. In fact, bond yields have already declined significantly in recent weeks in anticipation of this possible monetary policy easing as from Q2, 2024.
Corporate bond issuance is also dependent on the amounts of bonds maturing in any calendar year. Three issuers with bond maturities in 2024 (AX Group, IHI and Mariner Finance) have already refinanced their upcoming redemptions and will, therefore, repay the outstanding amounts of the old bonds which amount to just under €40m.
Meanwhile, other notable bond redemptions during 2024 are those of Tumas Investments plc (€25m in July), Hal Mann Vella Group plc (€30m in November) and 1923 Investments plc (€36m in December). The decisions by each of these companies on their method of refinancing or repayments to bondholders would be expected well in advance of the actual maturity date.
Although the corporate bond market has grown remarkably in recent years with over €1.6bn in issuance since 2019, there is a clear opportunity to accelerate this growth in the future given the sheer amount of liquidity across the financial system. Many retail and high net worth investors continue to seek fixed income securities for their investment portfolios since deposit rates at Malta’s two largest banks remain close to zero.
This excessive amount of idle liquidity within the financial system could be very beneficial given the sizeable investments required in the area of sustainable finance apart from the elevated funding requirements by the government to fund its ongoing budget deficit and the annual MGS redemptions in the coming years.
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