Bank feared PN could not repay €7m debt

Party leader Adrian Delia said the present administration might consider expanding on on what he described as an intelligent move by the previous PN administration

Adrian Delia said the present administration might consider expanding on on what he described as an intelligent move by the previous PN administration
Adrian Delia said the present administration might consider expanding on on what he described as an intelligent move by the previous PN administration

The ring-fencing of some 10 Nationalist Party clubs in a trust was necessary for HSBC Bank to ensure the party would pay back its loan.

A financial analyst told MaltaToday that HSBC Bank must have felt

the chances of the PN repaying the money it owed were very slim, if it insisted on setting up a securitisation vehicle to oversee the sale of the party’s properties.

The Times yesterday said the PN had placed 10 of its clubs in a trust – Patria Trust – in 2015, under the control of former EU Commissioner Joe Borg, with the specific intent of selling the property within 10 years.

The deed of the trust was made at HSBC Bank’s Valletta office around mid-2015 as part of a “securitisation process” and the party raised about €2 million from the initiative.

The decision was yesterday described as a “sound and intelligent financial move” by PN leader Adrian Delia, who was not a party official when the former administration put the clubs in a trust.

Delia told MaltaToday the present administration might consider broadening it further, but said he could not divulge commercial details. “What I know is that it was an intelligent decision at the time and I do not discount expanding on it,” he said. “The trust was merely part of a solid restructuring plan that my team and I have embraced wholeheartedly.”

Delia could not confirm if it was the bank that had insisted on the trust, instead of a simple banking guarantee, saying he had not been privy to the discussion at the time.

“But it is normal in business, when you own property and have debt, to put up the property as guarantee until you prove that you have the ability to service that debt,” he said.

The securitisation model is, however, different from a banking guarantee

“Introducing this securitisation process implies that the bank was leery of being paid the money in full if left up to the PN, or being paid ahead of other creditors,” an analyst told MaltaToday. “Placing the property in a trust means that the 10 clubs effectively no longer belonged to the PN, but to the trust, of which the bank will undoubtedly have been named sole beneficiary.”

In fact, a trust goes way be- yond the party putting the property as a guarantee when requesting a loan or an extension to payment on the interests due.

By law, if a creditor were to take the PN to court to seek repayment or if the party declared insolvency, any money recovered by the courts would first go towards paying employees’ salaries.

Next to be paid would be the government, which would seek payment for national insurance contributions, tax and VAT. Only then would the courts start considering settling claims by other creditors, including the banks.

“But by having the property in a trust, and therefore no longer belonging to the PN, those clubs would be safe from being seized by the courts and would remain under the control of the trustee,” the analyst said.

The source explained that such trusts were today being set up more frequently, even by individuals wanting to avoid their heirs paying succession tax on their demise.

In such cases, a person may place his property in a trust and indicate in a so-called ‘letter of wishes’ that he wants to remain beneficiary until his death, when his children would become the trust’s beneficiaries. Since any property in the trust would not, in fact, belong to either the parent or the heirs, no succession tax is paid.

“In the same way, HSBC would therefore circumvent any legal claims to the PN’s property and ensure it remain sole beneficiary of the sale of the property,” the analyst said.

“For the bank to go so far, the PN must be heavily exposed and HSBC would have had no guarantee whatsoever of when – and even if – it would ever get its money back.”

Delia would not commit him- self when asked if the sale of the properties would solve the party’s financial problems, if further drastic action would be necessary or if other schemes were being considered.

“I know that we will continue to improve the restructuring programme as necessary,” he said. “As the world turns to digital media, for example, we definitely need to reassess the money the party used to spend on digital media.”

The PN leader said the party needed to balance its finances, but insisted the finances were not in as dire a situation as some were trying to portray them to be.

MaltaToday previously re- ported that the PN had a debt of some €25 million.

A repayment programme covers several outstanding debts with various banks: €3 million payable to Bank of Valletta, €7 million to HSBC, €1 million to APS Bank, the €4 million that was collected through the PN’s ‘cedoli’ loans scheme – which capital was used to repay other loans and reduce interest rates on out- standing loans; but also another €6.5 million in outstanding national insurance contributions, €2 million in pending utility bills to ARMS, and other creditors.