The Business Observer November 16 2017

NEWS

Issue 80

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November 16, 2017

Distributed with Times of Malta

THE MALTA FINANCIAL SERVICES AUTHORITY

In the wake of the Paradise Papers, Finance Minister Edward Scicluna insists that Malta is not a secretive financial jurisdiction. see page 5, 6 >

INTERVIEW

EU opens infringement procedures against Malta e European Commission is currently working on a “fact-finding study” on Malta’s IIP scheme.

Marie-Claire Grima The European Commission has opened infringement proceedings against Malta, due to Malta’s failure to implement the Fourth AntiMoney Laundering Directive in a timely manner, an official spokesperson for the European Commission has told The Business Observer.

“The effective implementation of antimoney laundering legislation is a key priority for the European Commission,” Christian Wigand, a spokesman for the European Commission, told this newspaper.

“The Fourth Anti-Money Laundering Directive, which had to be transposed by June 2017, has not yet been transposed by a number of member states, including Malta. The Commission has therefore opened infringement proceedings against these countries.

The Commission is assessing the replies from member states, including Malta, who

have not yet transposed the legislation and will decide shortly on next steps in the infringement procedures.”

The Fourth Anti-Money Laundering Directive has strengthened the previous antimoney laundering rules and is specifically aimed at making the fight against money

“e effective implementation of anti-money laundering legislation is a key priority for the European Commission.”

laundering and terrorism financing more effective. It has also improved transparency to prevent tax avoidance.

The deadline for it to be transposed in all EU member states was 26 June 2017. Asked by the Times of Malta about the missed deadline just four days after 26 June, Finance Minister Edward Scicluna had said Government would seek to push through the new rules before Parliament rose for the summer recess, adding that the Commission would know the delay was a technicality due to Parliament having been dissolved early because of the snap election. He insisted that there would not be any issues once the European Commission was assured the new legislation would go to Parliament. However, nearly four months later, the directive still has not been implemented.

In extensive comments to The Business Observer on a number of critical topics, Mr Continued on page 3

Pensions expert David Spiteri Gingell analyses whether Malta’s current pensions system is enough to ensure financial safety for all. see page 9 >

INTERVIEW Planning Authority Chairman Johann Buttigieg believes Malta’s rate of construction is still sustainable, on one condition. see page 15 >

STOCK MARKET REVIEW Making the investment case for century bonds. see page 22, 23 >

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NEWS

Not even the EU knows who is being granted citizenship under Malta’s IIP scheme Continued from page 1 Wigand has also stated that the “European Commission is aware” of the reports drafted by the Maltese Financial Intelligence Analysis Unit (FIAU), which implicated Maltese officials in money-laundering and corrupt practices related to the IIP scheme. “The Commission is assessing the effective implementation of EU anti-money laundering legislation in Malta and is in contact with the Maltese authorities in this regard,” Mr Wigand said.

Malta’s controversial Individual Investor Programme (IIP), also known as ‘cash for passports’, has been a darling of the current administration for raising unprecedented revenue quickly and efficiently, and is widely considered as a key factor behind Malta’s ‘economic miracle’ – also producing a national budget surplus. Besides the obvious direct injection that boosts Government revenue, the programme also provides significant positive economic and business spin-offs to a number of economic sectors including construction, real estate and financial services.

However, it appears to be troubling various quarters for its secrecy and lack of transparency. In fact, Mr Wigand revealed to The Business Observer that the European Commission does not even have a list of names of people who are being granted citizenship under the Maltese IIP scheme: “As national citizenship is the precondition for EU citizenship and the entry door for Treaty rights, the Commission is monitoring closely the application of investors’ schemes granting national citizenship in member states,” Mr Wigand affirmed.

In the 2017 Citizenship Report, the European Commission had announced that it would be producing a report on national schemes granting EU citizenship to investors, describing the Commission’s actions in this area, current national law and practices, and providing some guidance for member states.

Mr Wigand revealed that the Commission has now started working on a “factfinding study” on Malta’s citizenship scheme: “Work on the fact-finding study to prepare the Commission’s 2018 report is

under way. In the context of this study, we will look at practical implementation of investor citizenship schemes in all member states where such schemes exist.”

The fact-finding study will, among other matters, also consider the transparency of information on applications for citizenship for such schemes.

Malta’s IIP programme was formally introduced in November 2013. A few months later, after pressure from Brussels, Malta added a condition to the IIP scheme, stating that no certificate of naturalisation would be issued unless the applicant could provide proof that they had been living in Malta for at least a year. However, four years later, it’s an open secret that non-European business people who are buying passports from Malta are renting or buying apartments on the island but are hardly spending any time – let alone residing – in Malta.

Mr Wigand confirmed that the Commission had supported this change to the

“e fact-finding study on citizenship investor schemes will consider due diligence criteria and security considerations, amongst other matters.”

Maltese IIP in 2014 on the condition that there should be effective application on the ground: “In particular residence should be effective. Any applicant for citizenship by investment should provide proof that he or she has resided in Malta for a period of at least 12 months. The Commission is monitoring the application on the ground of this condition. In addition, the Commission has launched a fact-finding study covering all member states that have such an investor citizenship scheme in place.”

The fact-finding study on citizenship investor schemes in the member states that offer them will, among other matters, consider due diligence criteria and security considerations of such schemes, were Mr Wigand’s concluding remarks to this newspaper.

What that will mean for the future of Malta and its controversial IIP scheme remains to be seen.

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NEWS

Minister Scicluna: “Malta as a financial jurisdiction is not secretive” Rebecca Anastasi The Paradise Papers, a massive leak of 13.4 million documents showing how the world’s richest and most powerful shelter their wealth, made for interesting headlines. Bono, Lewis Hamilton and even the Azeris made an appearance right here in Malta.

And while this year’s files, unlike last year’s Panama Papers, may not have uncovered criminality, they have lifted the veil on the complicated schemes individuals and businesses adopt, partly as part of a sophisticated tax strategy.

Malta’s position as an onshore, but low-tax, jurisdiction seems to be the reason for its involvement.

Recent leaked documents, reported in the local media, even show that Appleby, the firm named in the leak, had considered setting up a branch on the island, since it viewed Malta as a “modified offshore specialist”, with representatives apparently having met with Malta Financial Services Authority (MFSA) Chairman Joe Bannister, as well as various law firms to discuss the possibility.

In reaction, we asked Finance Minister Edward Scicluna if it is time to rethink Malta’s tax package to ensure it does not get mistaken for an offshore jurisdiction and to encourage more reputable foreign investors.

“Any financial jurisdiction whether it is London, Luxembourg or Malta is in the business of attracting legitimate financial transactions from all over the world,” Prof. Scicluna replied.

“The Financial Action Task Force (FATF) guidelines for due diligence and reporting of suspected criminal activity are there for all. I do not think that this crusade against particular countries is based on mistaken identities. Either they are offshore or they are not. Either they are secretive or they are not. Either they are cooperative with other jurisdictions when it comes to exchange of tax

FINANCE MINISTER PROF. EDWARD SCICLUNA

and other information or they are not. Whoever is trying to confuse these issues is misleading the reader. Whether this is done through ignorance or through malice is a moot point at the moment.”

He pointed to Malta’s compliance with international regulations. “What should give comfort to us as Maltese is that the relevant international regulatory authorities know that Malta as a financial jurisdiction is not secretive. It is very cooperative in exchanging requested information on both tax and AML fields, and abides by the accepted EU and OECD standards in the area of taxation and antimoney laundering,” he continued.

This was reiterated by Malta Chamber of Commerce President Frank V. Farrugia, who also pointed to the recent PANA report. “Together with other leading

“PEPs the world over are now being scrutinised more than ever. is is how it should be.”

– Finance Minister Edward Scicluna business organisations, the Malta Chamber welcomed the PANA Committee’s confirmation that the Maltese tax system is in line with current international standards and that the country respects OECD standards in terms of transparency, the fight against tax fraud and money laundering. While

being advantageous for businesses who make use of it, the Maltese tax regime is completely compliant with EU laws. In fact, the PANA report further declared that Malta is not a tax haven as was alleged of late,” Mr Farrugia said.

Despite this, questions have been asked as to whether regulators should increase their systems of checks to ensure that the companies set up are not being used for tax avoidance or illegal evasion.

In the case of the latter, Prof. Scicluna pointed to the automatic exchange of information between Malta and other EU member states, and the agreements the island has with other non-EU countries, but noted that the only way to fight tax avoidance was “to agree [on] appropriate EU-wide legislation” and also referred to the latest legislation passed by Ecofin coun-

cil in Brussels on anti-tax avoidance, namely ATAD I and ATAD II. With regards to the possibility of implementing a greater system of checks to less transparent jurisdictions, Prof. Scicluna mentioned discussions occurring on a European-wide level. “The system which we are devising in the EU is to blacklist countries which are non-cooperative in the area of anti-tax avoidance legislation and practices,” he said.

Recent reports by the news website EU Observer, stating that Malta was being uncooperative in this area, were rejected by Prof.

Scicluna. “The report was completely untrue and was corrected soon after by the EU Observer.

During Malta’s European Council Presidency the item was on the Ecofin Agenda and the letters Continued on page 6

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NEWS

Malta Chamber adds its own reactions to Paradise Papers leaks Continued from page 5 were sent at that time by the Code of Conduct group to the various jurisdictions. As President of Council, I had said in the ensuing press conference that initially the intent of the letter was to engage with the various non-EU financial jurisdictions and seek their cooperation. The blacklisting and the sanctions were to be reserved for non-cooperative jurisdictions.

The gist of this discussion took place again in the last Ecofin. All the speakers in the meeting including Malta welcomed the progress made. There were no dissenters whatsoever,” he insisted.

Prof. Scicluna emphasised the ways in which secrecy and opacity can be reduced within Malta’s financial services industry, through the sharing of information be-

tween regulatory authorities, as well as those in other jurisdictions. “The principle is Know Your Customer (KYC). These company registers will be shared by all EU member states once the amendments to the Fourth Anti-Money Laundering Directive are agreed upon between the Council and the European Parliament,” he said.

He also claimed that “under the present system, Malta’s ranking by the International Tax Justice Network in the area of transparency compares very favourably with other countries.”

Chamber President Mr Farrugia also pointed to Malta’s commitment to transparency. “Malta’s public registry is open for scrutiny as the country remains committed to the international standards of transparency and exchange of information. Malta has a broad net-

work of Exchange of Information (EOI) instruments with a significant number of jurisdictions in place that facilitates this exchange of information,” he said.

“At this delicate juncture, we must not cast a dark shadow on honest businesses who have trusted the Maltese taxation system, with their legally and ethically gained funds,” Mr Farrugia continued.

“The successful growth of the financial services industry in Malta is the result of a number of factors namely innovation, a robust operational infrastructure, efficiency of the relevant regulatory authorities and a strong responsiveness to industry practitioners,” he concluded.

The Paradise Papers leak also showed that global power players and politically-exposed persons (PEPs) have been shareholders in

FRANK V. FARRUGIA, PRESIDENT OF THE MALTA CHAMBER OF COMMERCE, ENTERPRISE AND INDUSTRY

“While being advantageous for businesses who make use of it, the Maltese tax regime is completely compliant with EU laws.”

– Chamber President Frank V. Farrugia some of the Maltese companies featured in the files. How can the regulator ensure that PEPs do not have vested interests locally?

“PEPs the world over are now being scrutinised more than ever.

This is how it should be. The KYC guidelines issued by the FATF are

clear in this regard. As a PEP, individuals are being scrutinised by their bank with respect to their bank account, and by their brokers when they come to invest in any company of their choosing.

This is how the system works,” Prof. Scicluna stated.

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INTERVIEW

“Most households do not start preparing for retirement until they are close to retiring” Sarah Micallef “Malta’s demographics, like that of advanced societies the world over, are greying,” said David Spiteri Gingell, Member of the Malta Pensions Strategy Group. A direct result of a combination of factors including healthy living, medical technology advancements, and the downsizing to smaller households, it begs the question: Is Malta’s current pensions system enough to ensure financial safety for all, given the sizeable demographic change expected over the next 25 years?

“The core features of any pension system are its sustainability and its ability to deliver an adequate pension income for persons in retirement. Both are intrinsically intertwined. A system can only deliver on the adequacy element if it is financially robust: that is, sustainable over generations,” said Mr Spiteri Gingell.

He explains that the pension review process began in earnest in 2004, when a World Bank independent review identified that adequacy of retirement income would fall to less than 20 per cent of average wage by 2050 and that, at the same time, the percentage of pension deficit to GDP will become unsustainable. “Since 2004, significant measures were adopted to give the pension system a more sustainable footing and guarantee the minimum level of adequacy derived from the social security pension,” he continued. He stated that for the first time since 2013, demographics

are now projecting an increase in Malta’s population. “EUROPOP 2015 projects that Malta’s population will reach 480,000 by 2060. We are well on the way there, with Malta’s population standing at 440,000; a direct result of net migration to Malta.”

To mitigate this, significant structural reforms to the pension system have been introduced to strengthen its sustainability, including increases in the retirement age and increases in the accumulated contributory history. Another aspect worthy of note is the amount of women entering the workforce. “In 2004, less than 30 per cent of women were gainfully occupied.

Today, women in employment stand above 50 per cent – whilst female participation within the 35 years and younger cohort is higher than the EU average. This means that future households are likely to have two pensions, doubling the income in retirement compared to contemporary retired households today,” he maintained.

Moreover, Mr Spiteri Gingell emphasised that further significant structural reform measures have been introduced to strengthen the adequacy element of the pension system, including the introduction of credits for child rearing and human capital development; the ability to fill gaps in the accumulated contributory history; and the removal of income tax on pension income. This leads us onto the issue of second-tier pensions. Mr Spiteri Gingell explained that a state pension system such as Malta’s is de-

signed to provide dignity in retirement by preventing people from falling into poverty, not to provide a person with the same level of income enjoyed in employment.

“Pension systems complement a state pension in the event that a person wishes to bridge the gap between the income earned in employment and the income derived from the state pension,” he affirmed.

There are different instruments countries employ to give their citizens the opportunity to plan and save for their retirement, ranging from private pensions to home equity release. In Malta, a voluntary framework targeting both personal and occupational pensions has been established, giving them the opportunity to enjoy a quality of life in retirement that is higher than they would otherwise enjoy if they were to depend exclusively on their state pension. Yet, despite it being too early to assess the extent of their success in nudging people to save for their retirement, research on similar initiatives overseas shows that people often don’t understand why they need to plan and save for their retirement, hence failing to take up incentivised saving opportunities.

“People are not always rational in their decision-making processes: often they don’t think and plan for the long term. Saving for retirement is a long-term decision which is adversely affected by behavioural heuristics,” said Mr Spiteri Gingell.

“This brings us to the second aspect – education. In January 2017, Gov-

DAVID SPITERI GINGELL, MEMBER OF THE MALTA PENSIONS STRATEGY GROUP

“Instilling a retirement capability amongst Maltese citizens is one of the more important challenges that needs to be addressed.” ernment launched a strategy for retirement and financial capability.

Work is in progress on a number of retirement and financial capability actions which are planned to be launched in early 2018. A sustained and aggressive holistic programme will positively influence people’s willingness as well as readiness to plan for their future.”

Despite much having been done since 2004 to strengthen the sustainability of the pension system, Mr Spiteri Gingell asserted that the pressure for reform of the pension

system should not be relaxed. “The architecture aspect of the pension system must be under constant review because this is dependent on the changes to the surrounding polity. Changes will continue to occur and the pension system must be sufficiently flexible and agile to adopt and adapt to such changes,” he explained. “Today a person who retires between 61 and 65 is expected, generally, to have a healthy life expectancy of between 15 to 20 years. This is not a short period of time – it’s nearly half the time one spends in the labour market. A pension system will provide dignity in retirement by safeguarding pensioners from being at risk of poverty.

But it will not provide them with the same level of income enjoyed whilst in employment,” he maintained.

Most households do not start preparing for retirement until they are close to retiring, he lamented.

“Instilling a retirement capability amongst Maltese citizens is one of the more important challenges that needs to be addressed: instilling a culture and a responsibility to plan the quality of life one wishes to enjoy in retirement, and to take the necessary actions during one’s lifecycle to secure the desired quality of life during retirement.”

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e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every month.

Editorial Coordinator Marie-Claire Grima

EDITORIAL

Just press the self-destruction button It is not our pleasure to lead with the story that the European Commission has opened infringement proceedings against Malta, due to Malta’s failure to implement the Fourth Anti-Money Laundering Directive. The extensive comments in our story by an official spokesperson of the European Commission on various sensitive subjects really put Malta to shame. It is indeed sad to witness a deterioration of an already pretty bleak picture when it comes to corporate governance, rule of law and consistent failure in doing politics the European way.

Our front page story is yet another reminder that all is not well. There are a number of points that have emerged from our cover story. First of all, the Government is obviously well aware that it had to implement the Fourth Anti-Money Laundering Directive by last June and it is rather strange – given the wider national context – that it has continued to fail in doing so until today. The Fourth Anti-Money Laundering Directive has strengthened the previous anti-money laundering rules and is specifically aimed at making the fight against money laundering and terrorism financing more effective. It has also improved transparency to prevent tax avoidance. There already is a massive cloud hanging over Malta and the Government when it comes to allegations of money laundering. An FIAU report had linked Government officials with money laundering practices in relation to the IIP scheme and the European Commission has now gone on record saying it is well aware of this report. By refusing to adopt the EU Anti-Money Laundering Directive, the Government is intrinsically further harming Malta’s image as a legitimate modern and normal EU member state. In the light of what has been happening in Malta since the shocking revelations of Panama Papers, we believe it is a fair question for people to ask whether the Government is really in favour of the strengthening of anti-money laundering regulations.

The front page story also touches upon the subject of the IIP scheme.

We learned that the EU is being left completely in the dark as to who is acquiring EU citizenship through Malta’s IIP programme. It is rather rich that the Government deems fair and reasonable that it is selling de facto EU passports and failing to inform the EU who the prospective and eventual buyers are. We joined the EU club in 2004 and we think that there

is nothing wrong if our sales executives continue going round the globe selling access to the EU block on our own terms, without even having the decency to pass on the names of the individuals being granted EU citizenship under the local IIP scheme. The European Commission spokesperson quoted in our front page article stated that as national citizenship is the precondition for EU citizenship and the entry door for Treaty rights, the Commission is monitoring closely the application of investors’ schemes granting national citizenship in member states.

Translated to non-diplomatic language, he is basically saying: you have taken this too far, and we’re on it.

The European Commission spokesman also revealed that the Commission is currently conducting a fact-finding study on Malta’s IIP scheme. It is quite clear that this study is being conducted in the light of a Government statement of intent to further renew the scheme and in the light of various controversial aspects of the current scheme – including its secrecy, adequate due diligence practices or otherwise, and substance when it comes to fundamental entry requirements being enforced or otherwise, such as residence in Malta. We feel it would have been more beneficial for the Government itself to conduct a significant review of the scheme in an attempt to improve fundamental aspects of it that do require major revision, rather than allow a situation where the European Union is evidently going to take the initiative to flag major concerns and we would then have to play catch-up and be reactive, rather than pro-active.

In conclusion, we’re baffled as to how it is possible that the Government is not realising that its position on the Panama Papers, FIAU reports, police failure to investigate politically exposed papers on the basis of FIAU reports, the failure to implement the EU Fourth Anti-Money Laundering Directive, the failure to seek to address serious shortcomings in the local IIP scheme and the failure to run the country in a normal European fashion are going to have a huge impact on its otherwise sterling work to revive Malta’s economy. It’s as if someone went up to the Prime Minister and told him “Prime Minister, our economy is booming, what shall we do next?” and the Prime Minister replied: “Just press the self-destruction button, stupid!”

Publishers Allied Newspapers Ltd. Content House Group Ltd.

Advertising Enquiries Tel: 2132 0713 Email: info@contenthouse.com.mt Advertising Sales Petra Borg Urso Brand Manager Advertising Sales Coordinators Lindsey Napier Marvic Cutajar

Printer Progress Press Ltd.

BUSINESS OPINION

Unfilled vacancies, missed opportunities

Clyde Caruana In recent years, Malta has registered a trend of higher employment rates and record-level low unemployment rates. Data indicates that when compared to any other European Union member state, Malta recorded the highest increase in employment in the second quarter of 2017, when weighed against the first quarter of the same year. Employment opportunities coupled with support structures and financial incentives have yielded visible results in the number of people entering or reentering the labour market. From free childcare to after-school services, to the tapering of benefits and in-work benefits, the notion of making work pay has been suc-

cessfully transmitted to individuals across society. Notwithstanding, with unemployment reaching its natural rate and available supply diminishing, timely action is necessitated to sustain labour market developments in a fastgrowing economy.

The adoption of these supplyside initiatives in conjunction with expansionary demand-side policies resulted in a net increase in employment of almost 9,000 in 2014 and 2015. In 2016, the net increase reached nearly 11,000 persons. Economic forecasts confirm that real GDP growth is expected to remain strong and employment growth will continue with an average of 2.9 per cent in 2017 and 2018. In the coming five years the real average growth rate is pro-

jected to stand at 6 per cent. As a result, the Maltese economy is expected to create approximately 43,750 jobs (net increase in fulltime and part-time). However, the local supply of workers on average increases by just 2,500 persons per annum. According to Jobsplus figures, vacancies in 2017 are expected to increase by 12 per cent over 2016.

With the surge in 2014 of a number of active labour market measures, a significant number of Maltese nationals moved from unemployment or inactivity to employment. Despite this positive trend, demand by far outstripped available supply. The number of foreign nationals employed in Malta has gone some way towards addressing this issue. However, a

sustainable and growing economy requires concrete actions to address demand and labour market flow, whilst ensuring fair and just procedures for accessing the labour market. Each unfilled vacancy is a cost and a missed opportunity for our economy.

If Malta is to maintain its competitive edge, the country needs to join forces to address the skills and labour shortages. Malta is an attractive place both for investors and workers. However, technological and demographic challenges have impacted and in a number of cases, even restructured labour markets across the world, and to sustain growth in Malta, we need to remain dynamic and reassure employers that the changing demands ema-

“In the coming five years, the Maltese economy is expected to create approximately 43,750 jobs. However, the local supply of workers on average increases by just 2,500 persons per annum.”

nating from a global economy will be met. This requires us to enhance our investment in human capital and offer opportunities to our workforce, whilst at the same time working to attract foreign labour. Companies need the right skills to thrive in their business, whilst employees require adequate conditions of work and recognition.

The search to adapt and to find employees with the right skills is felt across different economic sectors and occupation levels. Employers require both specialised as well as generic skills to capitalise on the economy’s positive performance. This requires cross-sectoral policies, where educational institutions and representatives from the industry are key players.

However, such prospects need to be complemented with actions that facilitate inflow of labour through less bureaucratic procedures, whilst minimising abuse.

The commitment is to continue to work for and with employers and employees towards achieving one common aim – safeguarding future growth.

Clyde Caruana is the Executive Chairman of Jobsplus.

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Content House launches new website Content House Group, one of Malta's leading publishers in both print and digital sectors, producing premium content for discerning audiences, has launched its new corporate website www.contenthouse.com.mt The website features details of the Group’s prestigious brands, which include some of the island’s most renowned glossy magazines, business publications and digital portals. It allows visitors to browse the latest edition of each publication, as well as access details of each brand, such as target audience and distribution channel.

Moreover, it introduces the company’s new ventures and provides details for exciting job opportunities across its departments.

“Following industry trends, the new corporate website includes many new features and makes use of the latest technologies,” Raisa Mazzola, Business Development and Digital Media Strategist at Content House, explained. “Besides providing information on each of our print and digital products, the site also gives users access to all social media platforms and allows them to easily download official rate cards directly from the

Time Out Malta & Gozo, currently in its 12th edition, annually. The company is also the exclusive media partner and bronze partner of the Malta Chamber of Commerce, Enterprise and Industry.

Content House and the Malta Chamber manage a joint venture involving leading business print and digital brands.

The site was designed by Think, one of Malta’s foremost website development companies, and the showreel was produced by leading audio-visual company Maka Visuals.

WWW.CONTENTHOUSE.COM.MT

website. Users can even apply for a job directly through the site by literally dropping their CV through a simple application procedure.”

The homepage includes a showreel showcasing the diversity of content produced by the Group, while the brand pages contain an overview as well as strong imagery for each publication or portal.

“Images and video play an important role throughout, giving users

a visual feel of what the company represents,” Ms Mazzola said.

Content House owns and manages Malta’s largest portfolio of high-end magazines and business publications, including, among others, Style, Gwida, Bliss, as well as The Business Observer, Business Agenda, The Commercial Courier, Economic Vision and the annual reports of the Malta Chamber of Commerce and the Malta

Business Bureau. Moreover, its portals, including Ourwedding .com.mt and Maltachamber .com.mt, have experienced yearon-year growth.

In addition, Content House is the exclusive national representative of the global Time Out International brand. Based in London, Time Out produces the world’s most recognisable travel guides, and Content House publishes

“Users can even apply for a job directly through the site by literally dropping their CV through a simple application procedure.”

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INTERVIEW

“Malta’s rate of construction is still sustainable, as long as foreign investment keeps coming in” Manuel Zarb Malta’s current rate of development and construction remains sustainable, as long as Malta keeps attracting foreign investment, according to Planning Authority Executive Chairman Johann Buttigieg. “As long as foreign investment keeps coming into the country, yes, it is sustainable,” Mr Buttigieg told this newspaper. “The minute there is a slowdown or decline in this regard, then that’s when we would need to stop issuing the current number of permits. But as long as that foreign investment is sustained, then we have to sustain permits. If we do not sustain that amount, we will see rental rates and prices go higher due to foreigners competing with the locals.”

Mr Buttigieg argued that the large influx of people coming to live and work in Malta and the number of tourist arrivals do not threaten Malta’s product value. “On the contrary, we need to reach a certain amount of mass to even begin solving certain problems, including traffic. If we don’t have a critical mass of people, then traffic solutions – such as a metro or others – would not be economically viable.” In his view, the figure that would make it viable is anything between three quarters of a million and a million people.

“We’re not far from that,” he asserted, “if you consider the locals and the foreigners coming here for work or as tourists, we’re almost at 650,000 people in any one month.”

The main push towards development, argued Mr Buttigieg, is due to the large influx of foreigners.

“Very few people know that in the last three years Malta has received more than 80,000 people in influx migration. In actual terms, you need an area the size of Sliema to provide all of these people with accommodation, restaurants, com-

JOHANN BUTTIGIEG, EXECUTIVE CHAIRMAN, PLANNING AUTHORITY

“We need to reach a certain amount of mass to even begin solving certain problems, including traffic. If we don’t have a critical mass of people, then traffic solutions – such as a metro or others – would not be economically viable.” mercial centres and so on. Our natural growth is normally 3,000 to 3,500 residential units per year, but with such an influx we obviously need more housing units. Had we not supplied a larger number of housing units, we would have higher rental rates due to the effects of supply and demand. I don’t think we’re reinventing the wheel here, but one thing we have to make sure is not to increase the development potential already envis-

aged in the local plans of 2006. We do need to protect open spaces.

But if there is the demand for development, then we should sustain that demand.”

Commenting on the issue of high-rise buildings, Mr Buttigieg said that 18 applications to build high-rises have been approved since 1994, but not all of them have been constructed. “I would say that in certain areas, if we want to create open spaces, high-rises are the only

solution we have. In my opinion, a high-rise shouldn’t be constructed in towns or villages like Birkirkara, or Naxxar. But we need to create them in designated areas. The Floor Area Ratio (FAR) Policy which was revised in 2014 identified six locations. Previously it could be applied anywhere, even in Gozo.” The six locations are the Marsa Park, Gzira and Mriehel for office use, and the Qawra peninsula, Paceville and the Tigné peninsula, predominantly for tourism and leisure uses.

Mr Buttigieg argued that highrise buildings do not ‘increase the density of the area’. “Many people don’t understand this concept. According to the FAR regime, the number of units that are being built is far less than should one build in a conventional manner. According to the FAR policy, the minimum size is 150sqm, and furthermore you need to have 50 per cent open space, the volume of which is trans-

ferred vertically, and to be surrounded by four streets. So, in fact, we are reducing the amount of development with the FAR policy, not increasing it. The only difference is that the development is being made vertically.”

Mr Buttigieg added that there are areas of Malta that need to be regenerated and others that need to be preserved. “People are not against development itself, people are against the way in which development is carried out. A person who has a development going on next door to them would normally complain, but they would also realise that the value of their own property has gone up. So the issue we need to address is how construction affects third parties, by looking at construction site regulations.”

“Many people unfortunately do not know that this falls within the remit of the Building Regulations Office, and often assume that this is the role of the Planning Authority, when it is not. Why create so many inconveniences to third parties when there are often other solutions? As people in construction often say, we’re not in a surgical theatre. But I think respect towards third parties should be a top priority.”

When asked to share his views on how the MEPA demerger into the Planning Authority and Environment and Resources Authority affected the PA, he said “it was a positive move. Today we can realise that the environmental voice is much stronger than it was before.

Previously we had one authority which may have overpowered the environmental arm, whilst today there are two independent authorities and two executive chairmen.

This stimulates discussion from which one must come to some modus vivendi. This aspect previously did not exist. Nowadays there is an equity of powers.”

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e Business OBSERVER | November 16, 2017

CASE STUDY

Rights issue by BOV will raise over €150 million worth of share capital Martina Said Following an Extraordinary General Meeting last July, Bank of Valletta’s (BOV) shareholders approved the issuance of a rights issue consisting of 105 million shares to its existing shareholders, with the aim of increasing the bank’s capital base by just over €150 million. This is the first capital raising issue of its kind by the bank in Malta.

Chief Business Development Officer at Bank of Valletta, Kenneth Farrugia, explained that shareholders are entitled to buy one share for every four shares held, at a price of €1.43 per share. “Shareholders can exercise their right to the acquisition of these shares between 6 November and 8 December 2017. In the process, they may opt to apply for all their proportionate entitlement to the rights issue, opt not to take up those rights at all, or alternatively, assign them in part or in full to third parties, as long as these are existing shareholders. The rights which are not taken up can be bought by existing shareholders who want to apply for more than the number of rights that they’re entitled to, and in the eventuality that the demand for lapsed rights exceeds the supply, a proportionality exercise will be undertaken.

Non-BOV shareholders can also apply for the rights offer but will rank after existing shareholders.”

The rights issue will lead to a 25 per cent increase in BOV’s share capital, which will serve the current and future business requirements of the bank going forward. “Predominantly, the reason why the bank is raising €150 million is to support its various business areas.

This rights issue is the largest ever on the local market and its size is a

THE BANK OF VALLETTA HEAD OFFICE

reflection of the bank’s strong market position as Malta’s largest and leading bank,” he said. “The bank enjoys a strong market share, practically servicing half of the operators in the national economy. In arriving at the figure of €150 million, the bank assessed the current state of play of its various businesses and their capital requirements and in parallel, also took a forward-looking view of how it sees these businesses growing in the future. The bank also gave due consideration to new areas of business that are of interest going forward.”

After the global financial crisis in 2007, the European Regulator implemented a number of reforms impacting the banking sector. These reforms were motivated by the need to ensure sustained market stability and integrity. Regulators also strengthened the regulatory framework through the deposit and in-

“is rights issue is the largest ever on the local market and its size is a reflection of the bank’s strong market position as Malta’s largest and leading bank.” vestor compensation schemes amongst others, aiming to further protect the interests of consumers.

“Through the introduction of the Capital Requirement Directives and Capital Requirement Regulations, banks were obliged to assess the capital requirements of their various areas of business and operation. This in turn brought about the need to strengthen their capital base, enabling the banks to sustain their existing business, and enter

into new areas of business. All European banks undertook an indepth assessment of their capital planning requirements within the context of the current and future businesses,” said Mr Farrugia.

He added that the introduction of the various prudential-led regulations after the 2007 crisis brought about a much stronger regulatory framework. “Regulators quickly recognised the importance of having a safe and sound banking sector

to ensure the stability of national economies. Prudential regulations are aimed at ensuring that banks are stable, and what followed after the crisis was a tsunami of regulations, including the aforementioned,” he asserted. “Banks were required to review their business model and as a result, they either decided to de-risk their business or completely exit from certain areas of business to alleviate capital requirements, as has been the case with some banks in Malta. Insofar as BOV is concerned, the Board and Management have undertaken a thorough assessment of the bank’s business model and its various areas of business within the context of the bank’s risk appetite.

As a result, a number of decisions were taken to further strengthen existing areas of business, give consideration to new areas that the bank wanted to participate in, and exit from other areas of business by closing these off – the bank’s exit from the trust business is an example of such decisions. On this basis, the bank was able to determine the relevant capital requirements to be able to develop and grow these lines of business.”

With the context of the bank’s capital planning requirements, an item high on the agenda of the bank is related to the development of its technological platform that will enable it to efficiently deliver its products and services to its clients through an omni-channel presence. Mr Farrugia asserted that BOV has always been a market leader in harnessing innovation in the design of avant-garde products and services, as well as in introducing new channels, and the bank intends to remain at the forefront in this regard. The changes in the competitive landscape are also compelling banks to increase their

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investment in technology. Traditional business domains such as payments, for example, which are at the very core of a bank, are being disrupted by the onset of Fintech companies on the market.

Mr Farrugia explained that, apart from managing the changing competitor landscape, banks have had to adapt to the obligations emerging from the new regulatory requirements. Given that these rules and regulations are technologyhungry, banks have had to deploy significant IT capacity to address these regulations that were introduced over the past ten years, as well as those that will impact the banking sector in the years ahead, such as MiFID II, PSDII and GDPR. “As a result of these developments, it’s a tussle for the banks to upgrade their technological platforms and introduce new digital enablers for their customers in order to remain relevant in the market, whilst at the same time deploying HR capacity to ensure that they are fully aligned with the requirements of the new regulations and the compliance obligations this brings with it. In response to this state of play, all banks have had to significantly strengthen their human resource complement to cater for the requirements of this new business and regulatory environment. In fact, BOV recently offi-

cially opened new offices housing over 100 employees across four key divisions – Risk Management Division, Compliance, Anti-Financial Crime and Debt Management Unit.

All units are of strategic importance to the bank and over the past years have evolved from peripheral units into key units within the bank’s organisational structure.”

As a direct result of these changes, BOV has recently announced a multi-million investment which will lead to a complete transformation of its core banking system. “This is a significant investment that will positively impact the way the bank operates and equally enhance the service delivery to its customers. It is a recognised fact that banks need to constantly invest in their systems allowing them to reach their customers through multiple channels and innovative products. In the absence of these important thrusts, banks will run the risk of becoming irrelevant and as a result will be disintermediated.”

“Despite these challenges,” he added, “the thrust to launch new products continues unabated.

We’re constantly working to bring innovative products to the market.

Only last week, we launched contactless cards in Malta, and have plans to continue growing in the digital arena. Earlier this year, the bank launched three innovative

“We’re constantly working to bring innovative products to the market. Last week, we launched contactless cards in Malta, and have plans to continue growing in the digital arena.” fund portfolios through its subsidiary, BOV Asset Management.

These developments took place as BOV has continued to invest in the development of its human resources capability and also in the necessary technologies, driven by the vision to remain at the forefront in delivering value to its customers through its breadth of products and services, and across multiple channels,” Mr Farrugia concluded.

KENNETH FARRUGIA, CHIEF BUSINESS DEVELOPMENT OFFICER AT BANK OF VALLETTA

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e Business OBSERVER | November 16, 2017

CASE STUDY

RE/MAX Malta plans to open at least five new branches in 2018 Jo Caruana RE/MAX Malta is aiming to recruit another 100 agents to join its sizeable workforce, bringing its tally of agents to more than 450, and opening five new branches in 2018, according to the co-founders of RE/MAX Malta, brothers Kevin and Jeffrey Buttigieg.

The company has been on an upward trajectory since it was set up in 2004 – with steady increases on year-on-year sales and letting, more offices, and more agents. It not only reflects the fact that Malta’s property market has gone from strength to strength in this time, but it is equally indicative of the company’s unfailing dedication to being the best that the real estate market in Malta has to offer.

“2017 has been a big year for us,” Kevin Buttigieg, the company’s CEO explained.

“We have seen the confirmation of a few new franchises as well as the opening of new RE/MAX offices in Swieqi, Msida and two in Marsascala. We have also consolidated our business over the last 12 months, and have increased our number of sales associates by 12 per cent and lettings associates by 25 per cent.”

The Buttigieg brothers attribute their success to the very capable and entrepreneurial team of franchise owners, managers and staff who have joined RE/MAX Malta over the years.

“We are lucky to have some of the smartest people in the industry who believed in our vision and joined us as franchise owners, partners and managers. If it weren’t for the dedicated workforce of agents and administration staff who have worked with us throughout the years, we would not be in the position of strength we are in today,” said Mr Buttigieg.

Beyond all of that, however, came another major achievement – winning RE/MAX Global Region of the Year at a ceremony in Las Vegas, for the first time after three subsequent nominations. “Winning the title means the world to us,” continued Mr Buttigieg. “When you’re in business,

THE NEW RE/MAX MALTA SWIEQI TEAM

you’re constantly trying to figure out where your markers are, and whether you could be doing better, so coming first among massive international regions has shown us that we are on the right track, despite the fact that we were competing against some of the largest countries in the world.”

Meanwhile, the RE/MAX brand in general has continued its dominance – it was yet again voted among the top most powerful franchise brands in the world by Entrepreneur Magazine, a Franchise 500 survey and the Franchise Times Top 200.

Furthermore, according to a survey completed on a local level, it is also the most recognised brand on the island. “Be-

yond that, RE/MAX is the number one real estate brand in the world,” Mr Buttigieg said, underlining how RE/MAX has become one of the globe’s most trusted companies.

Nevertheless, 2017 wasn’t without its challenges, and the CEO cites consistentlyhigh demands for property as one of the hurdles the company has had to face. “This is an incredibly fast-paced industry and it can be very hard to match demand with supply. We are pleased, however, that a number of exciting projects will be coming onto the market in the coming months – many of which have already been snapped up. Plus, there’s the challenge of human

resources, as it is getting increasingly difficult to find good people to join our team, especially as we are constantly in ‘growth’ mode.”

With that in mind, RE/MAX Malta has reinvested heavily in its training academy by hiring a regional training academy manager – Paul Vincenti – who will work closely with RE/MAX Malta to further improve the company’s standard of service. Jeffrey Buttigieg, the company’s COO said.

“Through integrated technology systems such as our online training platform, consistent mystery shopping, and both qualitative and quantitative research, we are able to benchmark our standard, pin-

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“ere’s a lot of foreign interest in Malta, but 80 per cent of purchasers are still local, which keeps the market very safe.”

point our weaknesses and improve accordingly.”

In 2017, the company introduced a learning management system which is integrated with classroom training. “Our associates now have to finish an online version of the classroom training and complete a test to get certified in the different categories,” Mr Buttigieg said.

During 2018, the company will be expanding its training academy and the online learning system, and will be introducing a point system that will offer their associates extra benefits in terms of online exposure, discounts and rewards.

Mr Buttigieg added: “in today’s market, we need to be innovative and stimulate progress to help associates understand the need for self-improvement and their career growth within the company. With these systems in mind and further ears to the ground, we are confident that we will be able to continue our growth, as well as keep our service at a high level.”

The plan to expand the workforce and open further branches is yet another example of how the company is looking to the future in different ways, keen to consolidate its recent successes.

As for the local market, Mr Buttigieg has faith that this will continue to do very well in years to come, especially as the majority of investment still comes from within the island itself. “Yes, there’s a lot of foreign interest in Malta, but 80 per cent of purchasers are still local, which keeps the market very safe,” he said.

“With that in mind, property investment is still strong as we’re still enjoying capital appreciation of between 4 and 6 per cent.

Plus, with residential rental investments garnering between 5 and 7.5 per cent, and commercial yields going up to an incredible 9 per cent, there’s no shortage of good reasons to invest in local property,” Mr Buttigieg concluded. “All of this stands Malta in very good stead to round off 2017 and to launch headfirst into 2018.”

KEVIN AND JEFFREY BUTTIGIEG, FOUNDERS OF RE/MAX MALTA

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CASE STUDY

Investing in local business with international expertise

EVAN MOHNANI, HEAD OF CORPORATE FINANCE (CHARTS)

Mediterranean Bank is currently in the process of relocating and consolidating its administrative, technical and operational functions to its new premises at The Centre, Tigné Point, Sliema. As both the Corporate Banking and Charts teams prepare to start operating from these new premises from next Monday, 20 November, Charles Cini and Evan Mohnani, who lead Corporate Banking (Mediterranean Bank) and Corporate Finance (Charts) respectively, agree that the relocation will serve to increase efficiency and interdepartmental cooperation.

“Moving to the new office will enable us to meet the needs of the business, allowing our teams to collaborate more effectively whilst offering clients improved facilities,” said Mr Mohnani.

Since 2009, the MeDirect Group – Mediterranean Bank’s and Charts’ parent company – has developed a diverse range of products and services aimed at the corporate community.

When Mediterranean Bank was acquired by Anacap Financial Partners in 2009, the new management team envisaged a bank operating on a much broader scale than it had been doing, catering for the retail and corporate markets alike. Acquiring Charts in 2010 and Volksbank in 2014 enabled the MeDirect Group to offer a complete corporate banking and financing service to the local business community.

“When I joined Mediterranean Bank in 2010, the corporate banking department consisted of just two people. Today my team consists of 19 people and we’ve gone from offering a few banking accounts and payment services to the point where we now have a full service offering to our corporate customers, including payments, foreign exchange, investment services and lending,” said Mr Cini.

In 2010, the bank acquired a majority shareholding in Charts; one of the leading investment

services firms in Malta with a strong reputation for raising bond financing. “We have been engaged in corporate finance since the inception of the Malta Stock Exchange 25 years ago and our corporate finance function principally involves raising capital for corporate clients through the issuance of listed securities such as bonds,” explained Mr Mohnani.

In the following three to four years, the bank continued to grow substantially, looking to diversify into corporate lending. The opportunity to acquire Volksbank (Malta) in September 2014 proved fortuitous in this regard.

“When we acquired Volksbank we took over the bank’s existing lending book, and after an exercise to consolidate and align their operations to MedBank’s policies and procedures, Volksbank was fully incorporated under the umbrella of our parent company, MeDirect Group. In the meantime we have continued to develop our lending operations supporting corporate projects valued at €1 million and over, and which meet our robust lending criteria,” said Mr Cini.

MedBank’s support to the local business community is not limited to the provision of business loans. The expert team at Charts is at hand to assist firms looking to raise equity and debt capital through the capital markets.

“Raising finance for corporate clients involves a wide range of considerations and comprises advising companies on aligning their business strategy with their financing requirements, assisting with the preparation and execution of a listing, and advising on regulatory issues and continuing listing operations. We have specialist knowledge of deal structures and project funding in various sectors including hospitality, food service, property and retail. Furthermore, we are major players in sponsoring bond and equity listings on the Malta Stock Exchange and our focus is to continue to do an ex-

“Our corporate finance function principally involves raising capital for corporate clients through the issuance of listed securities such as bonds.”

- Evan Mohnani, Head of Corporate Finance (Charts)

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cellent job in our area of expertise,” said Mr Mohnani.

Clients of Mediterranean Bank and Charts also have a range of banking and investment services available to address their companies’ needs in a holistic way. “We offer liquidity accounts, term deposits, overdrafts and current accounts for effective cash management and liquidity optimisation. Furthermore, we have recently upgraded our foreign exchange services by launching an online platform which allows customers to convert currencies using real time exchange rates.

Thus our corporate customers are able to take direct control of their foreign exchange requirements, either by planning ahead and acquiring currencies when the rate is most advantageous to them or by making foreign currency payments directly from their euro account” said Mr Cini.

“We also offer investment services to local asset management companies, with the added benefit that such companies can utilise the brokerage and wealth management platform that we initially launched for our retail customers.”

The bank’s corporate offering is leveraging off the expertise developed on the retail side of the business, dating back to 2013

By leveraging on the technological and operational infrastructure of MeDirect, we are now in a position to offer securities execution and custody services to local investment management companies and other firms with an active treasury function.”

– Charles Cini, Head of Corporate Banking (Mediterranean Bank)

when the online trading and wealth management platforms were launched for retail customers in Malta and subsequently in Belgium under the MeDirect brand.

“By leveraging on the technological and operational infrastructure of MeDirect, we are

now in a position to offer securities execution and custody services to local investment management companies and other firms with an active treasury function. We will soon take a further step towards consolidating our brand under the MeDirect name,” Mr Cini ended.

CHARLES CINI, HEAD OF CORPORATE BANKING (MEDITERRANEAN BANK)

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STOCK MARKET REVIEW

An investment case for century bonds

Christopher Mallia Bonds or other forms of borrowing instruments have been around for millennia. The first bond ever recorded dates back to circa 2,400 BC, whilst the first official bond, in a form closer to what we are used to in modern times, was issued by the Bank of England in 1693. Although the characteristics of bonds have changed significantly, the basic premise remains the same – the issuer borrows money from an investor and in return compensates the investor with some form of return.

One of the main characteristics of a bond is its maturity date which defines the number of years until redemption. This can vary from a few months, in the case of Treasury Bills issued by several governments across the world, to bonds in perpetuity. The latter do not have a maturity date and therefore the issuer has an obligation to pay the quoted coupon forever, unless this is restructured at some point in time.

Local investors are mostly familiar with 10-year bonds as this is the most common redemption period used by corporate bond issuers.

Meanwhile, Government stocks tend to have longer maturities although Malta Government Stock issues have never had a term longer than 25 years. In international markets, most issues, both corporate and sovereign, have a maturity of not more than 30 years.

However, in foreign markets longer maturities do exist. Apart from per-

petual bonds, in foreign markets we also encounter 100-year bonds (known as century bonds) which fall under the ultra-long bonds category. Such bonds also have a long history with the first issues of this type being recorded as early as the 12th century.

The latest examples of century bonds were evidenced earlier this year, with issues from Argentina and Austria. In June 2017, Argentina, just over a year after emerging from its latest default, issued a USD2.75 billion 100-year bond carrying a coupon of 7.125 per cent. The issue, the only of its sort in Latin America, was very successful as demand reached USD9.75 billion at a yield of 7.9 per cent. Three months later, in September 2017, Austria became the first eurozone

country to issue a century bond denominated in euro. Demand for this bond was also high as Austria received €11 billion worth of orders for an issue of €3.5 billion with a yield of 2.1 per cent.

Who would be interested in such long-term bonds? The main buyers of these types of bonds are institutional investors such as insurance companies and pension funds that need to cover long-term liabilities.

Nonetheless, statistics from the recent Austrian issue indicate that participation from pension funds was lower than usual. This could possibly reflect the low yield on this particular bond as well as the increasing popularity of defined contribution plans in which future benefits fluctuate in line with the pension plan’s investment returns

and therefore no fixed future benefit needs to be met.

The risks attached to century bonds are similar to those found in shorter-term bonds. However, the inherent risks are magnified by the fact that the bond has a much longer maturity. In an article by Kate Allen, published by the Financial Times on 12 September 2017, the author noted that the Austrian bond has duration of 44 years.

Duration measures the sensitivity of the price of a fixed-income security to changes in market yields which in turn are dependent on economic developments as well as changes to the creditworthiness of the issuer. The longer the duration, the more sensitive the price of the bond would be to changes in yields. The sensitivity is

reflected in a larger percentage change in price than in the yield.

Furthermore, bond prices and yields move inversely to each other, so when yields rise, bond prices decline and vice-versa. A bond with duration of 44 years indicates a high level of sensitivity and as such when yields in the eurozone start rising, the decline in price in percentage terms in this 100-year Austrian bond will be widely larger than the percentage increase in yields.

Furthermore, investors in such bonds must have a high degree of trust in the issuer which has to survive 100 years and also be in a position to service the debt during the lifetime of the bond as well as pay back the bond upon maturity. A common misconception in this re-

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gard is that when investors are contemplating an investment in such long-term bonds, they fail to consider the issuer’s ability to repay the bond upon maturity since it is so far in the future and therefore difficult to assess. Moreover, many investors naturally reason out that this a problem that should be faced by their heirs.

Nonetheless, credit risk remains an important issue even for such long-term bonds. In fact, although there was strong demand for the century bonds of Argentina, the bond also attracted a lot of criticism.

Various analysts referred to the turbulent history of Argentina which defaulted six times in the last 65 years including a USD80 billion default in 2001 which, at the time, ranked as the largest default by a sovereign nation.

This is reflected in the country’s credit rating. In fact, Argentina is classified as ‘non-investment grade’ with the three major rating agencies, namely Standard & Poor’s, Moody’s and Fitch Ratings, classifying Argentina’s debt in the single ‘B’ category. Various articles also noted that it is also unusual for an emerging country to offer ultra-long bonds given their relatively unstable and vulnerable economic performance.

On the other hand, the credit risk is much lower for the Austrian cen-

tury bond given that the country is rated by all three major rating agencies just one notch below the ‘AAA’ rating – the highest credit rating which only a handful of companies and countries currently possess. Additionally, whilst Austria’s century bond was denominated in euro, Argentina’s century bond is denominated in US Dollar, a foreign currency. This represents an additional risk for Argentina as the country needs to maintain enough foreign cash reserves to meet its debt obligations on time.

The heightened price risk is partially mitigated by the relatively high coupon attached to this bond.

Nonetheless, if the country does not improve its credit standing, investors still face a significant price correction if yields start rising as the premium over investment grade benchmarks would need to be maintained at current levels.

Critics of the Austrian century bond have highlighted the price risk inherent in this bond. At a coupon of 2.1 per cent, this bond, given its long-term duration, is very susceptible to movements in bond yields.

In a declining or low interest rate environment, a 2.1 per cent return from a highly-rated country may seem attractive.

However, fixing this rate for 100 years could be detrimental for investors since within the context of a cycle spanning 100 years, interest rates are bound to increase especially in view of the recent actions by three of the major central banks.The US Federal Reserve has already started raising its reference rate and is expected to announce a further rate hike in December. Earlier this month, the Bank of England also announced its first rate hike in a decade and indicated that additional hikes may be necessary.

Furthermore, last month the European Central Bank (ECB) announced a reduction in its asset purchases by half as from January 2018 and although inflation is still somewhat weak, the strong economic data emerging out of the eurozone could lead to a rebound in yields in anticipation of further monetary policy tightening by the ECB in the next decade, let alone in the next century.

It is also noteworthy to highlight that this year the US was also considering issuing 50- and 100-year bonds. However, the Treasury Borrowing Advisory Committee (TBAC), which was mandated to study the appetite for such bonds, declared that although ultra-long bonds are most likely to be in demand by those with longer-dated liabilities, the committee did not see evidence of strong or sustainable demand for maturities beyond 30 years. This could be yet another indication that century bonds are heading for a tough time in the near future. As such, whilst it is understandable that investors are frustrated at the lack of alternative investment options with a decent return, it is always important for investors to consider the inherent risks in any investment they are contemplating, especially ones with innovative features or which extend way into the future and hence carry many more uncertainties.

Christopher Mallia is Head of Research at Rizzo, Farrugia & Co (Stockbrokers) Limited.

“e longer the duration, the more sensitive the price of the bond would be to changes in yields.”

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This article has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned (if applicable) before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities, if any, to which this article relates (other than executing unsolicited client orders) until such time as the recipients of this article have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, may have holdings in the securities herein mentioned, if any, and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this article. © 2017 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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e Business OBSERVER | November 16, 2017

CASE STUDY

Newly-rebranded BNF Bank prepares to lend clients a listening ear Fresh from a new rebranding, BNF Bank is ready to build a new future for itself, promising potential clients seeking a bank they can depend on that it is ready to lend them an honest and reliable ear.

Formerly known as Banif Bank, BNF Bank has been operating in Malta since 2008, quickly establishing itself as one of the island’s leading banks. After being acquired by Al Faisal Holding – one of Qatar’s largest private investment groups – in October 2016, the bank rebranded to become BNF Bank this year. With over 200 dedicated employees taking it forward, the bank offers highly personalised services to both personal and business clients, through its network of 12 retail branches, together with three corporate and business banking centres.

“People are becoming increasingly selective about where they choose to invest their hard-earned money. They are looking for banks they can count on, and with whom they can build a trustworthy and long-term relationship,” said Michael Collis, CEO and Managing Director of BNF Bank. “Our clients bank with us because we are there for them on their life journey. Our vision is to remain a valued member of the community, helping our customers build a new future. We are firm believers in the

BNF BANK IN ATTARD

power of conversation, and the fruitful opportunities that can come about as a result.”

Despite having already achieved wide recognition with the bank’s prior brand, Mr Collis referred to the recent rebrand as an acknowledgement of the bank’s past, and at the same time a reflection of its ambitious goals for the future. “From the research we conducted, it was evident that the brand value was very high in the local market and going forward we made sure to strengthen this value while introducing new elements like the secondary colour and the fingerprint motif which represents the individuality and the human personality of the bank. The new brand is a testament to our origins while it projects a clear sense of direction of where we want to go and what we want to achieve together with our clients. It enables us to show our customer base that we haven’t forgotten where we started with this bank, but it also projects a sense of modernity,” he says. “It shows our very clear sense of purpose and what we want to do. It’s not a break from the past, but a continuation and a new chapter in the development of the bank.”

The rebrand is also the bank’s way of standing out from competitors and of denoting the will to move ahead, while still retaining the bank’s core values. One of the

“Our vision is to remain a valued member of the community, helping our customers build a new future.”

– Michael Collis, CEO and Managing Director, BNF Bank

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bank’s main priorities since its inception has always been to unceasingly understand its customers’ concerns. Thanks to this rebrand, the team at BNF Bank are now fully focused on transforming the financial needs of their customers into tangible realities by engaging in one all-important tool – listening. This refresh has presented BNF Bank with an opportunity to be even more present than ever before in realising its customers’ financial aspirations – being there to co-write a customer’s story the way only that customer wants it to be written, all through the power of conversation.

But why is conversation so important in triggering opportunities?

What makes a conversation with BNF Bank so different from a conversation one can have with any other bank? “Assuming our position as the ‘people’s bank’ in the Maltese islands means that BNF Bank aims to be the voice that is often unheard in the commercially-driven banking sector,” Mr Collis said. “It’s no longer solely about landing an account or settling a loan. It’s about being capable of efficiently adapting rigid financial corporate services to a customer’s persistent needs. BNF Bank believes that this can only be achieved through individualised attention, and possessing a balanced approach that is both professional and personal in equal measure.”

MICHAEL COLLIS, CEO AND MANAGING DIRECTOR OF BNF BANK

The bank has been keen to assure clients that from a practical perspective, the new brand identity will not impact daily operations.

“Clients do not need to make any changes or updates to their internet banking access and can continue to make use of existing debit and credit cards and chequebooks –

which will be refreshed with the new logo once they expire. In the coming months, BNF Bank will be rolling out new products to gain a greater market share. As a bank, we recognise there is a generational shift in the way that our clients bank and do business, and we want to be at the forefront of this.”

BNF Bank’s most recent value proposition, reiterated by its CEO, doesn’t settle for small. “Our aim is to accelerate our growth with a focus on understanding the needs of every individual client, tapping the potential of private banking, and optimising Malta’s geographic location to attract more

business and increase revenue streams,” he said. Will investing in meaningful open conversations with its clients help BNF Bank secure these promises? The bank itself certainly believes that that is the case.

Relating more to the public it wishes to serve is another bullet point on BNF Bank’s to-do list, which it is already addressing through the format of its new home loan package. Like most of its other services, BNF Bank aims to not only offer the best possible rates for home loans, but also to provide clear and simple solutions that are easy for anyone to understand and take on.

Yet aside from these straighttalking conversations with its personal clients, BNF Bank is planning to move into the fasterpaced generation of corporate banking by opening new horizons for customers in innovative but extremely relevant areas of customer interest, such as asset management and private banking.

The bank has ambitious plans to expand its business into asset management and investment banking services, and is in the process of putting in place the necessary infrastructure that will allow it to grow and fulfill its full potential as a personal and corporate banking institution.

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e Business OBSERVER | November 16, 2017

BUSINESS UPDATES

THE WINNERS OF THE FIRST EDITION OF THE MALTA INTERNATIONAL BUSINESS AWARDS

TradeMalta announces winners of Malta International Business Awards The first-ever Malta International Business Awards (MIBA), announced on 10 November, were organised to honour the achievements of Malta-based companies seeking to do international business by selling their products and services abroad. The awards ceremony was held during a gala dinner on held at The Radisson Blu Resort, St Julian’s.

For the inaugural edition, TradeMalta received a total of 38 applications containing more than 900 supporting documents. Representing the best of Maltese exports to the world, the winners of the six categories of MIBA are: Small Business: 365 Squared, award presented by Big Exhibits Medium-Sized Business: Altaro Software, award presented by BPC International Ltd Large Business: Toly Group, award presented by TradeMalta Emerging Markets: Medserv, award presented by HSBC Bank Malta Innovation Exporter: Ascent Software, award presented by Grant Thornton High Potential Exporter: Thynk Software, award presented by the Ministry for Foreign Affairs and Trade Promotion A seventh award, representing the overall winner of the MIBA, was won by Toly Group.

The event was endorsed by the Office of the Prime Minister and the Ministry for Foreign Affairs and Trade Promotion. TradeMalta organised the events together with its strategic partner HSBC Bank Malta. Other sponsors included Grant Thornton, Big Exhibits, and BPC International Ltd.

“TradeMalta received a total of 38 applications.”

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November 16, 2017

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Experience taste, elegance and style at Vascas

How FIMBank’s factoring services can help your organisation FIMBank is a specialised trade finance institution and a market leader in factoring, with the capability of offering such services on a global basis. Factoring presents a range of value-added facilities designed to provide an alternative financial solution, based on trade flows. It allows businesses to leverage their accounts receivables and become more competitive, primarily by improving their cash flows and securing sales on open account terms.

The benefits of factoring include an improved cash flow via the immediate availability of financing, and credit risk protection for buyers for open account transactions. Factoring services also extend to professional collection services, as well as ledger management. Fac-

Vascas Jewellers caters to a vast clientele searching for fine, quality jewellery pieces with an affordable price tag. The company is synonymous with exquisite taste, elegance and refined style, as well as a fivestar level of customer service. Vascas Jewellers offers clients a broad selection of items, including certified diamonds, gem-quality pearls, fashionable branded jewellery, watches, home décor and unique gifts, pre-owned luxury items as well as wedding gifts.

At the very heart of its business foundation lies its passion to customer commitment. Vascas Jewellers’ mission is rooted deeply in its overall corporate culture, with all operations based upon the values of empathy, responsibility, quality and understanding. Vascas Jewellers operates from its three outlets, managed by a close-knit team who work endlessly to ensure all customer touch points reflect a vision of luxury and fine living. Siké Jewels is one of Vascas’ most sought-after brands. Siké Jewels knows that beauty takes many forms, which is why it offers a variety of elegant, yet refined styles. Vascas Malta stocks Siké Jewels in all three outlets, which are situated in Naxxar, Sliema and Valletta. For any queries, Vascas Malta may be contacted on Facebook, as well through their website www.vascasmalta.com.mt Vascas Naxxar, 21st September Avenue, T: 2258 9200; Vascas Sliema, Bisazza Street, T: 2258 9244; Vascas Valletta, Merchant Street, T: 2258 9243.

toring can be contracted on a recourse or non-recourse basis, depending on whether the factor assumes credit risk for the debtor payment.

Clients who stand to benefit from factoring would normally be those involved in trading and manufacturing in different sectors, such as auto components, chemicals, electronics, pharmaceuticals, engineering, and textiles. Over the years, FIMBank’s reputation has been enhanced by its commitment to provide tailormade facilities to match the business requirements of companies involved in these and other sectors.

To discover more about the benefits of factoring services for your organisation, contact the FIMBank factoring team on factoring@fimbank.com

Deliver first-rate service to your customers while controlling costs For any field service business, customer expectations surrounding service levels and results are extremely high. With online businesses, such as Amazon Prime, people receive a high level of care and results – items are in stock, prices are low, and two-day shipping is available. These high levels of expectations are brought into the business world, including the field services industry.

Take, for instance, knowing the history of a specific customer. This is the perfect way to make people feel great about your brand, and yet it can be very hard to do. This set of interactions is key, because the customer feels heard and known. Yet too often, the systems in place do not give this type of insight. And if they do, it’s often tedious to find the information and creates a lot of frustration for your customer experience team.

With a properly implemented ERP solution, such as Acumatica, your business can achieve reduced response times, improved customer satisfaction, lowered support costs, and accurately billed transactions.

Acumatica Field Service Management provides the key pieces of information to help field service businesses optimise their customer service performance and focus on putting the customer first.

Learn how Acumatica can help polish your customer service crown and edge out the competition at www.computimesoftware.com/acumatica. You can also call on 2149 0700 or email info@computime software.com

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CorporateVIP helps companies retain the best people through benefits and wellness programs With around 72,000 registered companies in Malta, ranging from small firms to big branches of international conglomerates, finding good employees and keeping them happy has become more of a challenge than ever before.

Competition is relentless and investing time and money on training people, only to have them leave for more attractive prospects within a matter of weeks or months is a huge drain on valuable resources. As a result, many companies have started focusing more on what they can do for employees to keep them happy, help them manage their work-life balance, and allow them to do more with the money that they earn at the end of the month.

Having witnessed the rise of ‘employee perks’ all around the world, Nicholas Ponniah realised that the time was ripe to develop CorporateVIP, a local rewards and benefits platform that would improve work-life

balance, increase productivity, and attract and retain the best people.

“I noticed the trend in employee rewards and benefits platforms when working for

companies like Yahoo Australia, and start-ups in Singapore and the UK. Employee rewards

and incentives are now a staple in the workplace as more companies embrace the reward culture attitude to employee engagement, retention and recognition.”

“Having been in Malta for two years and seeing many new international companies opening offices here, I started to think about how a rewards and benefits platform could impact the workplace and give an additional tool for CEOs and Human Resource managers to reward and recognise their teams,” Mr Ponniah said.

“Malta was ideal as a test platform, to prove that the concept can work within a smaller community – an emerging market which has seen a number of companies with a skilled and talented workforce crop up in the past few years.”

To find out more about what CorporateVIP can do for your company call T: 2701 1748 or M: 9954 9625 or email E: info@corporatevip.com

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e Business OBSERVER | November 16, 2017

BUSINESS UPDATES

Cleland & Souchet - Malta’s leading purveyor of hampers and gifts From iconic gift hampers to a vast range of exclusive brands and beautiful gifts, Cleland & Souchet is a landmark destination for the distinctive gift whatever the occasion, and especially at Christmas.

Their flagship store in Portomaso is split between the ground floor, which is dedicated to a wonderful range of gifts, while the first floor is dedicated to the world of quality wines, premium spirits, cigars, fine foods and chocolates, most of which are their exclusive brands.

For this Christmas, the company has introduced a new selection of gifts from its luxury brands, including the MOOD by Christofle and more beautiful jewellery by Baccarat. For the first time, it is also launching a range of premium home music systems.

While you are there, you must browse through the wine cellar which stocks a great choice of wines like Montes and La Scolca, and view their growing selection of malt whiskeys and premium spirits.

Then, when it’s time for a break, sit back in one of their low sofa chairs at the C&S Wine Café and enjoy an excellent cup of coffee or a glass of your favourite wine.

In December, the shop will be open every day including Sundays up to 9pm. Parking for patrons is free. To inquire about the new C&S hamper collection, call on 2138 9898 or send an email on info@clelandsouchet.com

Express Trailers invests in new warehousing facilities Express Trailers has acquired a new 2,800sqm warehouse in Qormi to centralise all its managed warehousing activity from one depot and to be able to cater for the increased business in this sector.

Express Trailers entered the managed warehousing sector in 2011 when the company invested in its first two warehouses for the storage and distribution of pharmaceutical products with 900sqm of temperature-controlled environment.

These facilities with a capacity of over 1,550 pallets are licensed by the Medical Authorities and complement Express Trailers’ international pharma transport services which are up to EU Pharma GDP (good distribution practices) standards in the industry.

“The company always had vision. In 1995, Express Trailers was already the first local service company to attain ISO certification. Today, we are reaping the fruits of those business decisions,” said Franco Azzopardi, Chairman and CEO of Express Trailers.

“The prospects of more growth in this activity led us to start consolidating our available space and we decided to centralise our managed warehousing service under one roof to be able to offer a better and more efficient service to an increased demand.”

Mr Azzopardi explained how space is a valuable asset and companies should use it productively.

“Companies should concentrate on investing in their people and their core op-

erations and leave the handling of imports, exports, deliveries and distributions to a company like us, which is specialised and already equipped with the space and the means to handle this increasingly complex activity. We are therefore offering a ‘pay as you use’ system where instead of owning and managing their own warehouses, merchants use only the space they need, thus cutting significant costs. We are confident that this will be a concrete step that will cement Express Trailers as the leader in the local managed warehousing sector.”

“Space is a valuable asset and companies should use it productively.”

– Franco Azzopardi, Chairman and CEO, Express Trailers