COVID hit on BOV, Lombard impacts golden passport fund

Malta’s golden passport sovereign fund, financed by millions paid out by the global elite acquiring Maltese passports, suffered a marginal loss in its investments due to the COVID impact on the profits of Bank of Valletta and Lombard Bank in 2021.

The details emerge in the 2021 accounts of the National Development and Social Fund, the publication of which has long been delayed over a change in auditors.

Despite their publication, NDSF chief executive Ray Ellul is refusing to divulge the recipient of a $25 million loan from the fund during that year.

The fund says in its accounts that it loaned a Malta government-owned company $25 million in the form of a transferable loan note instrument. The loan had to be fully paid back by July 2023 at an annual 3.75% interest rate.

But Ellul told MaltaToday the information requested – specifically which company was extended the loan facility – “is commercially sensitive”.

The NDSF has in the past acquired a majority stake in Lombard Bank in a bid to retain its domestic status but has so far not commented on the loan it has extended to a government entity.

Ellul said the loan had an investment purpose, with the NDSF accounts saying the fund “acquired a short-term Transferable Loan Note Instrument” and which it defined as a “non-listed debt security” – or a private bond with hybrid characteristics, in Ellul’s words.

“For any non-listed debt security such as the TLNI in question, the NDSF is required to calculate the expected credit loss on the investment as well as carry out a fair value assessment. A €168,554 loss (in 2021) was simply a provision for risk in the accounts at year-end 2021… in actuality, the TLNI was repaid in full including all interests thereon in January 2023.”

Posterity fund’s assets in 2021 valued at €608m

Money received from the sale of passports is hived off to the NDSF, while 30% is directly paid into Malta’s consolidated fund. Of the 70% that is paid to the posterity fund, one-third gets invested in global equities and financial instruments. This cash is held in the NDSF’s two discretionary portfolios, which are separately managed by the Central Bank of Malta and Bank of Valletta Asset Management: in total €118.5 million.

A directed portfolio invests cash in government stocks and corporate bonds, which is also used for social and development purposes. This is valued at €288 million, and holds equity in BOV, Lombard Bank, as well as other bonds.

Unallocated monies, currently totalling €152 million, are held in a Central Bank account.

In 2021, the NDSF received €15.2 million from the sale of passports, a dip that started from the COVID year of 2020 with €27.8 million, which itself was just a fraction of the €100.6 million received in 2019.

Overall, by end of 2021, investments by the NDSF produced a net €2.2 million loss – marginally a negative return of -0.02%. The reason was mainly due to negative market movements in Bank of Valletta equity (-3% or a loss of €840,000) and in Lombard Bank of €7.9 million (-16%).

These were however mitigated by very positive returns from the Central Bank-Allianz investments (€3.79m, or 4%) and BOVAM (€2m, or 21%). Other local equities and corporate bonds delivered returns of over €750,000 (6%).

Altogether the total amount of proceeds from inception to date amount to €614 million, but the resulting total assets currently stand at €608 million.

Social projects funding

While the NDSF has committed over €109 million as of 2021 for projects related to health, social accommodation, sports and urban greening, the total contributions paid out in the year were of €5 million. Just over €1 million was paid in donations to the Community Chest Fund (€500,000), Dar tal-Providenza (€350,000) and Caritas (€150,000).

The main spend in 2021 was €66 million in social housing, and then various other grants for 58 primary healthcare centres (€10m), the St Michael Hospice (€8m), the Puttinu Cares apartments in London (€5m), as well as €4.9m for the GSSE 2023 games and €4.5 million in urban greening projects.

NAO audit of fund

Malta’s posterity fund spends millions collected from the sale of so-called golden passports, but it has no established policies for the selection of projects that get funding from this multi-million kitty, according to a recent audit from the National Audit Office.

Recently having acquired a majority stake in Lombard Bank, the NAO said the fund had no formal documented policy or standard operating procedure on which projects get funding. Neither is there a formal register for declined projects.

The NDSF’s management conceded that the withdrawals from the Fund had to date been governed by its investment policy, “but the evolution of the Fund now requires a separate policy on withdrawals, planned to be introduced by year-end and which will include the obligation to maintain a formal register for declined projects.”

In 2022, the agency received €30 million from the sale of passports to global elites for over €1 million, apart from having invested €55 million of its accumulated wealth in shares in local banks, government stocks, and 15 projects valued at €14 million.

The NAO also said NDSF’s €15,000 in donations to two beneficiaries in 2022, had not been regulated with a documented policy – these were €10,000 to a charity organisation telethon on 15 April 2022, and a €5,000 request from the Maltese Ambassador to the Vatican, to finance part of the costs to bring over from the Holy City and exhibit the vestment of St Pope Pius V in Valletta, for a whole month from 10 October 2022.