|
After years of sparse activity on the stock exchange in terms of new investment opportunities offered by Maltese companies, GlobalCapital this week came out with a bond issue which is a sign that there are entrepreneurs who believe in the economy and will seek the growth of their enterprise by turning to the market for support.
GlobalCapital’s foray into the market comes in the form of a EUR10 million bond with a coupon rate of 5.6% per annum. There is an over-allotment option of EUR7 million. These bonds may be redeemed between 2014 and 2016 and the first interest shall be paid in the beginning of June 2006.
The issuer has made an application to the listing authority so that the bonds are listed on the Malta Stock Exchange.
The bond is issued at par with a nominal value of EUR100 each. Applications will be received from next Thursday and the minimum application is for EUR2,500. GlobalCapital will use the funds for general financing purposes of the Group including the reorganisation of inter-company borrowings and to fund the expansion of the various core business segments of the issuer.
The identified segments for the use of funds are the life assurance operations either via joint ventures or possible acquisitions. The Group will also develop a pension fund administration and servicing facility. This shows that the Group is ready to enter into this market once the government pronounces its position on private pension plans.
The proceeds will also be used to increase the Group’s holding of immovable property, both locally and overseas for income generation and longer-term capital appreciation. GlobalCapital are to use the funds to find a balance between the property held for development and that used for revenue generation activities.
Anyone contemplating investing in these bonds must evaluate the risk associated with a Euro denominated 10 year bond. Even though the Euro is expected to be our currency in the next couple of years, one still has to assume the general economic conditions which are normally affected by factors like the customers’ purchasing power and habits as well as the interest rate itself of the currency which may vary but will not effect the annual interest income for this bond. However, spending habits may affect the revenue streams and profit of the Group.
GlobalCapital operates in the financial services industry which is highly competitive even though all those listed entities operating in this sector lately registered exceptional results. However, since Malta is part of the EU and will be in the Eurozone, overseas financial institutions may eye this country and enter our market. Once a market gets competitive, usually margins are decreased by industry players to retain their business. GlobalCapital has certain income from its business to business relationships which over a 10 year period may change. Its income is also dependent on certain retail operations and the Group is diversifying its revenue generating portfolios to ensure constant revenue streams.
As is customary, one would have to see if certain third parties would rank in priority to the bondholders. Bank of Valletta plc has a general hypothec on the Group’s present and future property as well as a special hypothec on GlobalCapital’s premises in Gzira. The value of this hypothec is less than Lm1million (around Euro2.2.million). The same Bank has a special hypothec and legal privileges for half a million Maltese Liri on another property in Sliema.
The sponsoring stockbroker for the bond issue is HSBC Stockbrokers (Malta) Limited and the underwriter, manager and registrar is HSBC Bank Malta p.l.c.
If one had to take GlobalCapital’s published results for 2005 and extrapolate the balance sheet then with the effect of the EUR10 million or EUR17 million of the bond as a long term debt, and retaining the same level of shareholders’ funds, the Debt to Equity ratio which presently is 12% will go up to 50% (EUR10m) or 77% (for EUR17m).
Interest cover which in 2005 was 74 times will go down to 6.5 for EUR10 million and 4 times for EUR17 million. Overall the Group will utilise the funds to generate new income streams and also strengthen the Balance Sheet with property held as an investment.
Lately, IHI plc issued a private placement bond of EUR12.5 million Euro at 6.5% maturing 2012-24. Although the coupon rate is higher these funds were to fund a project in the Russian Federation and are related to the tourism sector, which is in itself a higher risk sector than that in which GlobalCapital operates in.
|
