14 - 20 June 2001

Government facing high repayment costs as bond/stock issues mature

by Ivan Brincat

The government had issued Lm486,333,527 worth of stocks between 1994 and 1999 however, in fact, it had taken up Lm737,728,527.
The largest discrepancy between the original issue and the actual size took place on 15 July 1998. The government, then, has asked for Lm10 million but had taken
up Lm70 million instead and at
the highest interest rate ever of 7.8 per cent.
On that same day, the government had also taken up Lm25,851,800 instead of Lm10 million in bonds which had a coupon of 6.8 per cent and an earlier maturity date of 2004.
The government had also taken up Lm30 million instead of Lm10 million at 7.2 per cent for stocks which mature in 2008.
Originally, when the government had started to issue stock on the MSE, it usually took up what it had asked for. This was the case in 1994 when two stock issues which expire this year were taken all up. These both had a coupon of 6.5 per cent while the amount was Lm2m and Lm10m.
As of this year, the government will have to start repaying the
first bond issues which were issued in 1994 and 1996.
The largest amount to be re-paid is Lm17,600,000 for bonds/stocks issued in 1998 and which matures on 19 November. The main problem is the high interest to be paid and the length of time until maturity, adding to the government’s high cost to pay back investors.
By the end of 2004, the government will have Lm208,702,000 in stocks which will mature that year.
A couple of weeks ago, Finance Minister John Dalli had stated that the proceeds from privatisation will go towards a reduction in the public debt which according to the latest statistics from the Central Bank stands at just under Lm1 billion.
On the other hand, in the private sector, there were eight bond issues, all aimed at raising finance as well as the Malta Government Privatisation Bond.
The first company to issue the bonds was Gasan Finance. It had issued two bond issues with different maturity dates in 1999.
This was then followed a month later by Corinithia Finance. In 2000, there were various issues which included Bank of Valletta, International Hotel Investments, Eden Finance and United Finance. The interest rates for these bonds varies between five and 6.75 per cent with the only bond issue exceeding this being the Bank of Valletta USD Bond issue which has a coupon value of eight per cent.
The issuing of bonds has become an alternative way for companies to raise finance. However, stockbrokers have told The Malta Business Weekly that the government’s issue of stocks this year, and the declared intention to issue more stocks has led to a nearly saturated market.
“It is becoming harder for companies to either list on the MSE or issue bonds because of the liquidity problem and the fact that government is issuing a lot of stocks this year,” the stockbrokers said.