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6 maltatoday | SUNDAY • 14 NOVEMBER 2021 NEWS MATTHEW VELLA PLANS to force bondholders of a Maltese fashion retail franchiser to forgo their interest payments after COVID-19 lockdowns rav- aged Melite Properties' rental income in Italy, were changed at the eleventh hour. From initial plans to ask bond- holders to have their coupon re- duced for the forthcoming three years in a bid to contain Melite's rental income losses – specifi- cally down to zero for 2021, and then 2.5% and 3% for the next years – the tables were turned with an injection of sharehold- ers' capital. Around 70 bondholders were present at a long-awaited ex- traordinary general meeting last Thursday, where stockbro- ker Paul Bonello, whose firm Finco Trust represents a group of bondholders, addressed the meeting with an ominous warn- ing. "This meeting is of great im- portance in the history of capital markets in Malta... it's the first challenge of its kind to face our market, because had investors not shown great resistance to this senseless proposal, the prec- edent would have been a great one indeed." With a devastating COVID-19 pandemic having closed down Melite's chain of Accessorize shops across the north of Italy all throughout 2020, the franchis- ers' shareholders were holding out on injecting any new capital right up until last week. The volte-face came with a €660,000 contribution from Alf Mizzi & Sons, which comes over and above a previous €638,000 contribution from Alf Miz- zi (€443,000 of total), Marina Milling as well as Michael Sol- er's Daystar Holdings. The cap- ital injection will be turned into preference shares ranked after the bonds, and with no fixed coupon. "We wish to make it clear that this is being done not because of any legal obligation, and that it will be the last such capital con- tribution or support Alf Mizzi makes to Melite Finance direct- ly or indirectly and must in no way be construed as creating any precedent or expectation of further contributions in future," Melita said in its latest company statement. Malta's retail investment mar- ket indeed tends to be charac- terised by unsophisticated inves- tors who have great trust in the bonds market, as one that always pays out its interest payments. In this case, the Melite Finance bond – a €9.25 million bond pay- ing out a 4.85% a year – carried the name of its shareholders, the Alf. Mizzi Group, Marina Mill- ing, and Lidsdale, whose direc- tors are the Soler and Ganado business groups. "These investors believed they could blindly trust the business acumen, honesty and integrity of the shareholders, who are con- sidered to have a good reputa- tion in Malta," Bonello told the bondholders' meeting. But he was critical of the busi- ness group's entitlement in ask- ing their bondholders to take the hit of its COVID losses. "Expect- ing the small fry to buckle under the pressure of the big guy was never going to be a solution. This was a failed attempt to trample on the Maltese bondholder... but at least one shareholder, Alf Mizzi & Sons, had some shame left in them to do what should have done at the start and invest more capital," Bonello said. Melite Finance was hard-hit by the COVID-19 lockdown in Italy in 2020, forcing it to shut down its stores and find new tenants for several of its stores. The re- tail franchise chain suffered €4.2 million in losses in 2020 due to the closures of its 26 Italian fash- ion shops for the Accessorize, Monsoon and CKU brands, and more worryingly saw its equity spiralling down to €1.3 million at end of year 2020. Between Janu- ary and June 2021, it suffered pre-tax losses of €1.98m after impairments. The response of the sharehold- ers was to shore up capital re- quirements with a €1.1 million loan, instead of increasing their share capital; Melite Finance also secured €449,000 from the Malta Development Bank's Cov- id Guarantee Scheme to meet its interest payments. But instead of putting up the necessary capital as liabilities mounted, the shareholders planned to ask bondholders Bonello gave Melite's board a stern reprimand over the effects of COVID on businesses. "The pandemic affected negatively many businesses in Malta... but none of those whose bonds are listed on the Stock Exchange or the Prospects Market con- sidered not paying their inter- est payments. Unfortunately, Melite's bondholders' trust was reduced to nil after this attempt to reduce their coupon, well af- ter Melite sold its property leas- es to a special purpose vehicle, on the basis of revaluations by its hand-picked valuers." Bonello said this was the ex- act contrary of what would have happened in the foreign mar- kets, saying shareholders unable to put up the required capital would have exited the company. "Indeed the coupon should have been increased where the risk for secured bondholders had grown due to the company's losses and the sale of its leases, and not – as Melite's board expected – have bondholders become the sacrifi- cial lamb and save the company, rather than the shareholders as the risk-takers." mvella@mediatoday.com.mt Melite Finance volte-face wards off unprecedented challenge to investors Alf Mizzi fronts capital injection after bondholders' resistance to have their 2021 interest payment wiped out following COVID-19 lockdown losses Stockbroker Paul Bonello addressed a bondholders meeting taking to task plans not to pay out the 2021 interest to bond investors CONTINUED FROM PAGE 1 Schembri said the measure would lead to unfair competition, with anyone ben- efiting from such incentive being in a position to offer the property at a better price to that of the developer. "MDA en- courages government to consult the As- sociation before issuing such measures as what are meant to be incentives for some, directly and negatively impact the industry." MDA added that the measure is also discriminatory against people who are not owners of immovable property, and insisted that this is not an amnesty for developers. "This is because develop- ers pay their final withholding tax with every contract signed and therefore, as developers who pay their tax at source they will not be benefiting from such in- centive," Schembri concluded. The rules were slammed by the Cham- ber of Commerce as discriminatory, while both the Malta Institute of Taxa- tion and the Institute of Financial Ser- vices Practitioners called them "undesir- able and untenable". The financial services body said the rules came at a time when Malta's grey- listing had highlighted Malta's lack of rigour in taking action against default- ing taxpayers. "It's beyond our comprehension," the MIT-IFSP said. "Since Malta was grey-listed earlier this year, both the Malta Institute of Taxation and the In- stitute of Financial Services Practition- ers have been actively participating in and contributing to national efforts to procure Malta's removal from the grey- list. In the opinion of the institutes, the publication of the rules is not helpful in this regard." They complained of lack of prior con- sultation, with the tax measure having no underlying rationale or justification. "The Malta Institute of Taxation and the Institute of Financial Services Prac- titioners invite the authorities to recon- sider their implicit endorsement of un- lawful behaviour of this nature and to repeal the Rules with immediate effect." The Chamber says that the legal no- tice suggests that tax defaulters that do not have the money to settle their dues promptly, can only do so by liquidating their property. "This legal notice in- dicates that government believes that tax monies have been used to purchase property... If we do not want to see any more of this cavalier behaviour in the future, we should make sure that peo- ple are not able to purchase additional property before they settle their tax ar- rears." The Chamber said that only then, should an exemption from tax on prop- erty transfers be allowed until 31 De- cember 2022, and be effective in curbing old habits. "Those who default on tax payments to finance speculative activities may al- so end up delaying settlement of trade credit indefinitely, to the detriment of businesses that supply them." Property tax ruse angers industry