23 - 29 March 2000

Meridiana's Wine Futures Option: a first for Malta

by Anthony Manduca

Meridiana Wines Estate Limited has just launched a Wine Futures Option. This is a novel business concept for Malta. This Option represents an opportunity to reserve one bottle a week of a selection of Meridiana Wines at today's prices for the next four years and to receive a bonus of wine bottles at the same time.

Francis J.Vassallo, partner in F.J.Vassallo & Associates and Dr Max Ganado, partner in Prof. J.M. Ganado & Associates, advised Meridiana on the offering.

Dr. Ganado explained: "There is a difference between 'Future' and a 'Future Option' - the Future Option is much safer for a buyer. A 'Future' represents a purchase - a fully completed purchase - of a product expected to materialize in the future (hence 'Future'). A 'Future Option' is an entitlement to the product expected to materialise in the future and allows the holder the choice of taking his reserved wine or not exercising his right to demand the wine and receiving his money back (hence 'Option'). In either case, the option holder is entitled to a number of bonus bottles".

"In other words, this 'Option' is an entitlement to purchase and is, therefore, not binding on the buyer. It is binding only on the seller. If, for any reason, the wine should fail to materialize, then the option lapses and the buyer is entitled to receive a refund of the sum paid plus the bonus. The concept of buying future agricultural produce dates back to Roman law. Likewise the promise to sell a future product. These contracts are fully regulated by the Maltese Civil Code. Meridian's decision to add an Option to the Future minimizes the risk of natural elements for the buyer".

The offer document is brief and to the point. It proposes a minimum order of LM1000 of Meridiana wines over four years. This equates to one bottle of wine a week for four years. This parcel of assorted wines is purchased at today's prices. The Options are being issued in the form of physical certificates to buyers (or groups of buyers) who will be recorded in a special register of holders. This will be evidence of their rights. This registration permits the Options to be sold (watch the stamp duty!) and to be pledged at any future date. Since a certificate is issued for each year, buyers may sell the wines for one year while retaining the rest. It is worth considering that, if the prices of the wines were to increase, the Options would become more valuable. Conversely, in the improbable case of the price decreasing, the Options would become less valuable.

Certificates have to be presented to Meridiana in October of every year if they are to be properly exercised. If the procedures are not followed, the Options will lapse and the buyer will be entitled to a refund plus the free bonus bottles. It is therefore important that buyers read the terms of the Options and the offer document so as to ensure they will enjoy the benefits of their contracts.

Mr Vassallo affirmed that "Meridiana's use of this mechanism to sell wine is interesting from two angles. Firstly, it is complementary with developments in Malta's nascent capital markets. Although the Wine Futures Option is not an investment instrument, many of its features are lifted from bond and share issue practices: the Offer Document, the Register, the name of the contracts - Futures Option - and the method of exercise. This commonality confers a sense of security in the methodology. This is naturally essential given that one is entering into contracts for wines which do not yet exist. Secondly, it represents a positive, professional development with respect to wine buyers. Although not a new concept overseas, the Futures Option is certainly novel for Malta. It contemporaneously seeks to take into account estimated future wine yields, market demands and product prices".

Such a contract is attractive because it enables wine buyers to plan their future purchases and expenses in times of scarcity. The annual sell-out of Meridiana's wines augurs well for the success of the compan's Wine Futures Options Offer.

The strong interest in this novel concept has obliged the organizers to reschedule the closing date for the Options from the 30th March to the 17th April.

More information about this offer may be obtained from S. Rausi Trading at Stadium Street, Gzira (Tel. No 330447/316210; Fax: 336952)