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14 maltatoday | SUNDAY • 5 SEPTEMBER 2021 NEWS NICOLE MEILAK PILATUS Bank, a small private bank opened in Malta in 2013, was perhaps most notorious for its personal, 'secret' business model, largely catering for politically ex- posed persons (PEPs) under strict rules of due diligence. Having started operations in January 2014, the bank, owned by Ali Sadr Hasheminejad, a US-naturalised Iranian scion from a wealthy family, entered the spotlight in 2017 after Daph- ne Caruana Galizia claimed the bank had processed a $1 million payment from the Aliyevs of Azerbaijan, to the wife of former prime minister Joseph Muscat. While this allegation was dis- proved by a Maltese magiste- rial inquiry requested by Mus- cat himself, by then the banks' other dealings came under scrutiny from financial in- vestigations. In 2018, after Hasheminejad was arrest- ed in the United States over sanctions-busting, an extensive com- pliance review from the FIAU and the MFSA was initiat- ed with the bank's licence being sus- pended by the European Bank- ing Authority. The FIAU probe has since been concluded, with the bank now fac- ing a €5 million fine for breaching Malta's anti-money laundering regulations. The report gives key insights in- to the sheer wealth that was being passed through the bank, as well as to the types of clients that made use of the bank's dubious services. Clients were regularly moving millions from one account to another: one client, involved in the textiles industry, transferred over €6 million and £2 million to another company owned by the same beneficial owner. They said the funds were intended as corporate financing for the shareholder, but the FIAU said the bank failed to query why a trading company would trans- fer most of its funds to another company, rather than keeping the same to fund its own oper- ations. A separate client saw a sub- stantial increase in their account turnover, going from €750,000 to €150 million. This would raise some eyebrows in most local banks, but Pilatus Bank wrote it off as a mere business diversifi- cation exercise, with no expla- nation provided on how this diversification had contrib- uted to such an exponential increase in account turno- ver. Other clients grossly underestimated the amount of mon- ey expected to be placed in their ac- counts. One customer initially anticipat- ed €80 million, The wealthy clients of Pilatus Bank Melite: investors fear insolvency as owners again withhold lifeline MATTHEW VELLA A stockbroker representing bondholders of the Melite Finance group has said it is unac- ceptable that investors will be asked to ac- cept lower returns in an October meeting, when interim accounts have not yet been published. The financial regulator this week suspend- ed the listing of Melita Finance plc's bonds for 10 days after the company failed to pub- lish its unaudited interim financial state- ments for end-June. Melite, whose subsidiary is the owner of the Accessorize retail licence for a string of stores in northern Italy, will convene a bondholders meeting within the first week of October, requesting the green light for the reduction of the 4.85% coupon on its €9.25 million bond issue. The group was hard-hit by the COVID-19 lockdown in Italy, forcing it to shut down its stores and find new tenants for several of its stores. But Paul Bonello, of stockbrokers Finco Treasury Management, said it was "unac- ceptable" that the bondholder's meeting be allowed to take place without the necessary transparency by way of published interim accounts reviewed by auditors. "Without such financial statements, bondholders will not be in possession of the necessary finan- cial information in order to take a decision on a fully informed basis on the various pro- posals to be tabled," Bonello said. The retail franchise chain suffered €4.2 million in losses last year due to the COVID closures of its Italian fashion shops for the Accessorize, Monsoon and CKU brands, and more worryingly saw its equity spiral- ling down to €1.3 million at end of year 2020. The company operated some 26 properties in Italy, but the ravages of COVID-19 across Italy forced a severe lockdown that killed business in the country, and forced Melite to rescind its leases on the stores. The bondholders meeting will now take place by no later than 8 October, with all ancillary documentation to be communi- cated by 10 September, including interim management accounts for the company and subsidiary Melite Properties. The listing authority bye-laws do not spec- ify that interim accounts are necessarily au- dited or reviewed by the auditors. But Bonello said that it was strongly sus- pected that the company's shareholder funds may by now have been completely wiped out by the accumulating losses. "In the current circumstances, where it is sus- pected the company may already be insol- vent, the auditors' review assumes greater importance," he said. In August, shareholders Alf. Mizzi, Ma- rina Milling, and the Ganado family, were requested by the Melite board to consider whether they were in a position to provide additional support to the company, over and above the €1.1 million loan to the company they provided. "The shareholders were not in a position to uphold the request tabled at the meeting," the board said. Shareholders have so far not proposed in- creasing their share capital. The company secured €449,000 from the Malta Development Bank's Covid Guaran- tee Scheme to meet its interest payments for its €9.25 million bonds. The €1.1 million loan will be as part-capital contribution to the company (€630,000) that will be repay- able at the option of the company after the 2028 bonds are redeemed; and €470,000 in a non-interest loan, repayable within five years. "It is customary, moreover, for such state- ments to be reviewed by the auditors," Bonello said. "Indeed, even the interims published by the same Melite in previous years 2020 and 2019 were so reviewed.In my opinion, the real reason why Melite Finance has decided not to produce interim accounts reviewed by the auditors, is that PricewaterhouseCoop- ers are unable to confirm the going-concern assumption underlying all financial state- ments of solvent companies. "As time passes it is evident that what Melite Finance expects is that the suppos- edly secured bondholders effectively bail out the company in a situation where the entire shareholders' funds have dried up, and shareholders are unwilling to put their money where their mouth is and inject a few millions by way of risk capital." In 2019, Melite issued a €9.25 million bond to finance a restructuring of the group, whose principal activity is the acquisition and sub-leasing of property rights for Ital- ian retail outlets. But now the group wants bondholders to reduce the bond interest rate from 4.85% to 3.5% as from November 2021. The company intends convening a meet- ing for bondholders on a proposal to reduce the coupon on the bond, which Melite says must "reflect the economic realities which the company and subsidiary Melite Proper- ties face and will continue to face." Melite Finance's stores in the cities of Bolzano, Como, Florence, Padua, Pavia, Milan, Turin and Treviso – previously sub- leased by its subsidiary Melite Properties – will be taken over a third party already operating its own brand across more than 80 stores all over Italy. It will also assume responsibility for the Accessorize franchise in Italy. Melite also concluded agreements for the subletting of seven other stores to third-par- ty operators unrelated to the Accessorize brand, while one store remains vacant. mvella@mediatoday.com.mt Having started operations in January 2014, the bank, owned by Ali Sadr Hasheminejad, a US- naturalised Iranian scion from a wealthy family, entered the spotlight in 2017 after Daphne Caruana Galizia claimed the bank had processed a $1 million payment from the Aliyevs of Azerbaijan, to the wife of former prime minister Joseph Muscat Pilatus Bank served as a clearing-house for hefty, multi-million transactions for PEPs. An FIAU penalty of €5 million revealed the extent of its activities

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