Social housing and Malita’s €60 million finance gap

Malita Investments was set up in 2011 by the government to finance the building of Renzo Piano’s Valletta City Gate project. 

Rather than fronting the €80 million cost directly, the government created an investment company that would finance, develop and manage the property. Malita would construct the buildings—parliament, the open-air theatre and City Gate—manage them and rent them to the government. 

The arrangement was one way of securing finance without adding to government’s debt burden, while also encouraging public participation through a share issue. 

But now, the company is facing serious liquidity problems that forced it to suspend works on a large social housing project in Luqa, leaving contractors and service providers in the lurch. 

The problems appear to have started when the company took a strategic decision back in 2017 to involve itself in the development of social housing through a contractual agreement with the Housing Authority. By 2022, the €58 million in finance that Malita had secured for the housing project from the European Investment Bank had already been burnt through and the company was facing a massive funding gap of €60 million to complete the project. 

The addition of more housing units to the original project, cost overruns as a result of increased construction expenses were blamed for the shortfall. And although by end 2024 Malita had managed to secure bank finance to cover most of the shortfall, by June 2025 it was still struggling to bridge the remaining gap. This forced it to suspend works on the Luqa project and not declare an interim dividend pending a review of the housing project. 

MaltaToday went through Malita’s annual accounts to understand how the company arrived at this critical juncture that has left private shareholders concerned over the fate of their investment. 

Born in controversy 

Malita was constituted in such a way that government must have a minimum shareholding of 70% with the rest being issued to the public and listed on the Malta Stock Exchange. Today, the government holds 81.9% of the company’s shares, while private investors hold 18.1%. The company has an issued share capital of 208,206,593 shares worth €104 million. 

Malita receives funding from public concessions that were passed on to it in 2012 when parliament approved the transfer of the Malta International Airport and the Valletta Cruise Port concessions to the company. This meant Malita would be receiving the rents paid by MIA and VCP for the duration of the respective 65-year lease agreements instead of the government. 

The then Labour Opposition had criticised the Malita model, insisting it was only intended by the government to skirt around the country’s debt, which at the time stood at 72% of GDP—in excess of the EU’s 60% threshold. 

However, the incoming Labour government of 2013 did not rock the boat. Malita continued operating as originally intended—receiving rental income from the lease arrangements with MIA, Valletta Cruise Port, parliament and the open-air theatre in Valletta, while finalising the works on the City Gate project. 

Shift to housing 

But in 2017, Malita shifted its focus to affordable housing projects through an arrangement with the Housing Authority. It was one way of ensuring that a loan of more than €50 million secured from the European Investment Bank would not appear as government debt—a déjà vu for those who followed the parliamentary debates in 2012 with the difference being that the crew had changed. 

For Malita the cost-benefit analysis made sense. It would finance and build the properties, securing its income by leasing the finished buildings back to the Housing Authority and eventually the individual tenants when the residences are allocated. 

In December 2017, Malita concluded an emphyteutical deed with the Housing Authority to acquire 16 sites across Malta and develop them into residential units and garages for affordable housing purposes. 

Eventually, one of the sites was dropped and additional units and garages were added on to the other sites. Malita had to build 748 units. 

Ostensibly, this change in plans skewed the initial financial projections and by year-end 2021, Malita’s auditors were already warning of potential liquidity problems. 

Variations and overruns 

The company had secured financing for the project based on the initial estimates but variations for various sites, including the additional number of units, necessitated an increased spend. The auditors noted that the higher spend was approved by the board of directors and management was pursuing options for the additional required financing. 

“Management also provided appropriate evidence supporting the profitability of the project, subject to curtailment of further cost overruns,” the auditors noted. 

The cost overruns would continue to hound the project for the next four years. 

In the annual report and financial statements for 2022, Malita’s directors reported that construction work for the sites was complete except for the Luqa site, which was the largest. The report said tenders for the Luqa site would be issued in 2023. 

A €60m black hole 

But the directors also revealed that the €58 million in financing for all the project, based on initial estimates, had already been drawn down even though the project was far from finished. Consequently, the board said it had a “financing gap of circa €60 million”. 

The directors explained the higher capital costs in this way: “The increased spend is being incurred as a result of more units being constructed when compared to budgeted plans, increased rates for services when compared to original budgeted rates and related increased costs driven by supply chain constraints currently present in the construction industry.” 

Nonetheless, despite a gaping hole of €60 million, the board said it was “confident that the necessary financing will be secured in the coming months to finalise the construction and finishing phases of all mentioned sites”. 

Meanwhile, roll forward 12 months and by the end of 2023, Malita was reporting that the financing gap had now risen to €63 million. This was the capital expenditure required to complete the housing project. 

Plugging the hole 

During that same year the company tapped into different funding streams to plug the hole. It raised €29.9 million from private financing through a share issue; secured an EIB loan of €22 million; obtained a €7 million loan from the Council of Europe Development Bank; and was in discussion with a financial institution for a €4 million loan to bridge the rest of the gap. The actual financing had to become available in 2024. 

What directors described as “a critical development” was the extension of the housing deed by an additional eight years until 2053. This was approved by parliament’s National Audit Public Accounts Committee in October 2023. 

By 2024, the annual report painted a rosier picture. An additional 266 housing units had been completed for a total of 392. This represented a threefold increase when compared to December 2023. 

Malita had also successfully completed the share issue and secured the EIB loan. Directors were confident that the remaining €11 million in loans from the Council of Europe Development Bank and another financial institution would materialise. 

“Discussions with financial institutions are progressing well, and management has received correspondence indicating that the remaining funds amounting to €11 million are conceptually approved, providing confidence in the successful completion of the project across all sites,” the directors wrote. 

No dividend, suspension of works 

Roll forward to June 2025 and the unaudited interim financial statements restated that some financial arrangements were still being negotiated to address the funding gap. Consequently, on 28 August 2025, Malita’s board of directors dropped the bomb. They resolved not to declare an interim dividend to “preserve cash resources” until the end of year results were in. 

“This decision reflects the company’s current strategic position regarding its affordable housing project and the significant cash requirements of the Luqa project,” the directors said, acknowledging that Malita had a liquidity problem. The Luqa housing project is Malita’s largest ongoing development, consisting of three blocks expected to be completed in 2026, 2027 and 2028, respectively. 

“The company notes that cash flow requirements for its development projects have increased beyond original projections due to certain project delays and increases in project costs,” the directors said, admitting that the company was yet to secure new loans and was also discussing potential changes to the terms of existing facilities. 

“The company has been in discussions regarding new facilities specifically to finance the Luqa project, however it is not currently in a position to draw down on these facilities,” the board said. In parallel, the board was also undertaking a comprehensive review of the financing requirements for the housing project. 

Meanwhile, news broke out that contractors and suppliers stopped being paid for works carried out on the project, a situation that raised alarm bells in the market. 

On 7 November, Malita issued a company announcement on the stock exchange in which it confirmed that works on the Luqa site were “temporarily suspended” until the strategic review of the project was complete. 

No bailout 

Crucially, the company said it was in discussions with stakeholders, including the Housing Authority, “regarding the future direction” of the housing project. No decisions had been finalised but Malita emphasised that it was “not expecting a government bailout”. 

“Any solutions being considered must be commercially sustainable and compliant with applicable state aid regulations and the company’s obligations as a listed entity,” the announcement read. 

But the situation was exacerbated when former Malita chair Marlene Mizzi accused Housing Minister Roderick Galdes of trying to interfere in Malita’s affairs and “hobnobbing with contractors” during her time at the company’s helm. Mizzi claimed the minister removed her in May 2024 after she stood up to him. 

On 26 November, Malita issued a company announcement refuting the allegations that its decisions and actions were influenced by ministerial intervention. Galdes has refuted the allegations, which are now subject to two separate investigations—one by the Standards Commissioner requested by Momentum Chairperson Arnold Cassola and another by the Auditor General requested by the Nationalist Party. 

As for the liquidity challenges, Malita said it was working with stakeholders to address the issues. But the announcement did not give much detail as to how the company would plug the funding gap, four years after the liquidity problems were first flagged. 

Since August, when the issue came to a head, Malita’s private shareholders have seen the share price decline as the prospect of legal challenges by unpaid contractors looms heavily over the company. Meanwhile, work on what was billed as Malta’s largest social housing project in Luqa remains suspended while Malita searches for the light at the end of the tunnel.