The Business Observer Newspaper 7th April Issue

INTERVIEW

Issue 48

|

April 7, 2016

Distributed with Times of Malta

City of London Corporation lobbyist Jeremy Browne is confident that the capital would reinvent itself in the event of a Brexit vote – but explains why most businesses believe staying in is the better option. see pages 10 and 11 >

NEWS Job candidates should be more aware of the options they have when signing up with recruitment agencies, Data Commissioner Saviour Cachia believes. see page 3 >

Practitioners urge banks to speed up account opening Vanessa Macdonald There seems to be no relief in sight for foreigners who want to open bank accounts in Malta, even though practitioners are complaining that it is taking longer and longer – to the point that it is deterring investment.

Practitioners are well aware that the scenario has changed dramatically with regards to regulation, but the perception of many contacted by The Business Observer – all of whom only spoke on condition of anonymity – is that banks are now going beyond what they actually need to do and are “being holier than the Pope”.

“Ten or 15 years ago, it used to be a simple thing for a foreigner; now it is the hardest thing – and not only for company owners but also employees! It took almost two years for one of our clients,” one said.

“Banks sometimes just say ‘no’ outright, within a matter of days. In other cases, they just drag their feet and you have to keep chasing them. At

one stage, we had international clients threatening to pull out of Malta.

“It is not only about the considerable time but also the cost involved: some banks ask for the same documents two or three times because new policies are introduced. And some fees have doubled and trebled overnight. We appreciate that banks now need huge compliance teams.

But it is very frustrating and it is harming local businesses.”

Another explained that banks will not take clients unless they have a presence in Malta – not just having a registered office and a local director but also being active, and having employees at a physical place of work.

“I am very grateful that they have protected Malta from potentially embarrassing situations as they may uncover things that we have not since they have more tools available to them. But I have seen it go from one extreme to the other.

Jurisdictions have to be practical,” he said.

To make matters worse, the Single European Payment Area was set up with the intention of

OPINION

blurring the distinction between local banks and those in member states – but it now appears that Europe is trying hard to deter this.

“There is undoubtedly pressure building up for a company to use a bank in the country where it is actually operating, in spite of the fact that this goes diametrically against the whole concept of freedom of movement of capital,” another expert said. “The clampdown on tax avoidance has been building and will increase – and revelations like the Panama Papers will only make banks around the world even more wary.”

The two main local banks have defended their operations. A Bank of Valletta spokesman said the bank’s account opening process are governed by stringent ‘know your customer’ procedures, to ensure that new customers and funds were traceable and coming from legitimate sources – in line with international practice, and are based on a number of regulations, including the Prevention of Money Laundering and Funding of Terrorism.

Continued on page 3

Other jurisdictions are doing all they can to establish themselves as fintech capitals and Ganado Advocates believes Malta should be doing the same. see page 5 >

NEWS 6PM founder Ivan Bartolo is “both proud and sad” that someone has come forward interested in company shares but feels that it was inevitable given growing interest in the health sector. see page 6 >

e Business OBSERVER

| April 7, 2016

3

NEWS

Processes depend on customer specifics in terms of regulations Continued from page 1 “The process is very much dependent upon the nature and quality of information received from Corporate Service Providers that are introducing such entities to the bank. The time to open an account would depend on a number of factors, including the complexity of the ultimate beneficial ownership structure, the jurisdictions involved, the type of business undertaking and the provenance of funds.”

HSBC’s spokesman pointed out that it has a specialist International Banking Centre that caters for non-nationals.

“The centre has dedicated staff providing services to international customers while carrying out the required level of due diligence in line with regulations. As part of the onboarding process, customers are given a specific appointment and are informed of what documentation to bring to aid the process. The length of such process may vary depending on each customer’s banking services needs and the documentation required in this regard,” he said.

Banks are governed by the implementing procedures issued by the Financial Intelligence Analysis Unit in 2011, updated in 2013. The 15-page document applies specifically to banks.

These are a subset of the general procedures for the Prevention of Money Laundering and Funding of Terrorism Regulations – which run to 107 pages.

Job candidates should be aware of data protection options Candidates should be aware of data protection options when they sign up with recruitment agencies, Data Commissioner Saviour Cachia has advised.

Although he has not received any formal complaints, The Business Observer has heard of instances where applicants’ details were sent out without their consent.

“We have had meetings with recruitment agencies because they hold important data about people. The overriding principle is that the data can only be used for the purpose for which it was furnished,” he said.

But that said, there are numerous other options which candidates should be aware of – and he encouraged agencies to explain these when signing up job seekers.

“Candidates should be told that they can opt to give the agencies carte blanche to submit them for vacancies – or to insist on prior approval. They can also make it clear whether they are interested in being submitted for jobs with their previous employers,” he said.

One candidate attended an interview at the recruitment agency’s premises and only realised who the company was at that stage.

“I was not informed that the agency would be sending my CV to that company. I had no idea who I was talking to or how they had my CV without my permission. After the interview, I withdrew my application and asked the agency to delete my account.”

Candidates should also remember that consent to send out their CV is not irrevocable and

can be withdrawn – and that they also have a right to insist on their data being completely deleted, Mr Cachia added.

Although not all agencies get feedback from employers on the candidates fielded, some do – and in such cases, the candidate can submit a “subject access request” to access their case notes.

For older candidates, it is also worth bearing in mind that while agencies may need an ID card number for identification purposes, they do not need to reveal their age on their CV. For some agencies, age may be a mandatory field in their forms – but for those aware how difficult it would be to pinpoint age discrimination, this could be an issue.

“Candidates should be told that they can opt to give the agencies carte blanche to submit them for vacancies – or to insist on prior approval”

“After starting my new job I was told that had I included my date of birth on the CV, most probably I wouldn’t have been considered for the management role I hold today because of my age.

“Had I not been guided well by my agency, Misco, I wouldn’t be occupying my role today, a role which I’m finding very rewarding,” one candidate told The Business Observer.

Discrimination is notoriously difficult to prove and recruitment agencies are rarely present for interviews – and therefore cannot intervene or object.

One candidate was doing very well during an interview until she mentioned that she had a child. She was asked how she would cope, whether she intended to work full time and whether she would ask for flexitime.

“Of course you can challenge them as to whether the question is appropriate – but will it make you sound like a troublesome employee? Since then I got another job and am thriving. It’s their loss,” she shrugged bitterly.

In a small country like Malta, the danger of a candidate’s identity being worked out – even if certain data is left out – is clearly higher. But some cases point at serious breaches rather than just bad luck.

“I signed up with a recruitment agency but they phoned the company – because they knew the directors! I was confronted by my employer about this and fired,” another candidate complained, not wishing to be identified and declining to name the company.

e Business OBSERVER

|

April 7, 2016

5

OPINION

Fintech: blurring the contours of banking and financial services Leonard Bonello and James Debono Relatively unheard of before the beginning of this decade, the word “fintech” (financial technology) has swiftly established its place in everyday language and made it into the Oxford Dictionary. In fact, Bloomberg acknowledged that this term was everybody’s buzzword during the World Economic Forum held in Davos in January.

But what is fintech? Fintech mainly denotes the fusion of financial services with information technology, which is principally driven by greater connectivity, accessibility of online data, and more communication devices in the hands of today’s consumers.

The main innovations developed by sprouting start-ups, amid this unstoppable hybridisation of technology and finance, range from digital payments, crowdfunding and peer-to-peer (P2P) lending, automated wealth management, cryptocurrencies, block chains and distributed ledgers, to big data and cloud computing, robo-advisors and online factoring.

In a certain sense, fintech is simply the next step in the digital revolution which has cascaded into various aspects of our daily lives.

In the same way that technological firms such as Facebook, Twitter and Instagram have allowed us to change the way we connect with people through the creation of online social media and in the same way that Amazon, e-Bay and Alibaba have transformed the way we shop, technology is now also impacting our daily financial transactions.

Fintech firms such as Transferwise and Lending Club are creating online market places, removing barriers and allowing financial transactions to take place without the need to include traditional banks or other financial institutions.

Existing institutions are aware of the threat fintech firms pose to their future and are incessantly striving to ride the technological wave and to invest in those novel ideas which are constantly redefining the realm of investment services and financial markets. Institutions are strategically luring tech entrepreneurs into the cut-throat world of finance for cost reduction and most importantly better performance and effectiveness of their services. The relevance of these efforts is even more crucial now that that there is a young generation of consumers asking for more transparent and innovative alternative solutions to their financial needs.

The catch-22 for most fintech companies is to try and adapt their business model to be in line with the applicable licensing requirements and regulatory conditions, especially those taking the plunge into the retail business. The operations of the typical service provider in the financial industry are being dramatically redefined and therefore the applicable regulation and licensing requirements must evolve to keep up with this transformation.

The future of the financial industry is rife with exciting and disruptive innovations which are attracting the interest of regulators worldwide.

Financial watchdogs are constantly trying to set up a fitting envi-

ronment to house these market developments while safeguarding the stability of the current regime and protecting the interest of the investors. Their ultimate test is to strike the balance between adopting a progressive and tailor-made regime to nurture these technological advancements and maintaining the conventional framework, so as not to destabilise the industry and weaken the investors’ confidence in the system.

These emerging, alternative forms of financing raise several legal and regulatory issues.

Despite the fact that the current Maltese legal framework caters for some of these issues (arguably in a piecemeal fashion), enabling Malta to be at the forefront of the industry, it must consider reassessing the current framework to

“Other jurisdictions are quickly taking initiatives to establish themselves as fintech capitals of the world and Malta should likewise”

mould a bespoke structure to cater for these developments, rather than stretching the contours of longstanding rules.

Other jurisdictions are quickly taking initiatives to establish themselves as fintech capitals of the world and Malta should likewise aspire to such status. We have a

good mix of technological and financial regulatory know-how in this country which would make it a pity to miss out on the revolution taking place.

Leonard Bonello and James Debono are a senior associate and advocate respectively at Ganado Advocates.

6

e Business OBSERVER

| April 7, 2016

NEWS

Interest shown in 6PM shares 6PM’s 255 shareholders will have to decide in the coming weeks whether to approve the start of a possible share buying process, which founder Ivan Bartolo said made him “both proud and sad”.

The company announced last week that interest had been shown in the acquisition of shareholding. It will convene an extraordinary general meeting on April 28 at which the shareholders will need to approve the release of price-sensitive information so that the procedure can go ahead.

In accordance with listing rules, no information has been released about either who the interested party is or what the offer may be.

Mr Bartolo said that the approach had come out of the blue – but that it was something he had anticipated, deep down.

“We are a very prominent IT player in the UK health market which used to be viewed as a niche sector but is now one that is increasingly attractive to big players, some – but not all – of which are IT companies. The health sector is a very exciting one, which is why global companies like Amazon and Google are also

looking for a foothold, so it is only natural that a successful and profitable company like 6PM would be a target,” he said.

“The best analogy would be to compare it to having a teenage daughter who is all dressed up and ready to go out. What can you gain by locking her up in the bedroom? You watch them grow knowing that the time will come when they need to spread their own wings. And when they catch a suitor’s eye, your job is to ensure that he is suitable. And that is what we intend to do, as we would want someone with the same cost and revenue synergies, the same outlook with regards to our people and talent, and the same appreciation for our roots in Malta.”

6PM has been expanding internationally but is now at a critical junction: there are other markets that could be tapped, from the US to Asia, which would require a quantum leap in both financing and in clout.

“It would be a shame not to let the company grow when you have a product with global replicability.

And allow me to say in all humility that the products we make change people’s lives. I feel that we have an obligation to get them to as many people as possible around the world.

“We decided to list the company because we wanted to show the world that we were growing and that we could be taken seriously.

Yes, we have expansion options

like bonds, rights issues or venture capital – but having a strategic owner is also important for a product-based company,” he said.

“As soon as the company announcement was out, I spoke to

all the employees and was given a round of applause. They see this as a vote of confidence for all that we have achieved, and as a way to take the next step in our evolution.”

6PM’s HISTORY Mr Bartolo founded the company in 1996 and it now employs over 170 employees.

6PM Ltd was registered in 2001 and five years later 6PM Management Consultancy (UK) Ltd was set up in the UK by Alan West Robinson and Steve Wightman. The two companies were brought together under 6PM Holdings in 2007. During 2015, the 6PM Group acquired Blithe Computer Systems.

Today, the 6PM Group is made up of 6PM Ltd, 6PM UK, 6PM Macedonia, emCare 360 Ltd and owns 70 per cent in 6PM Ireland, as well as strategic investments: 22.5 per cent in Javali LLC (US) and 45 per cent in Javali Europe.

8

e Business OBSERVER

| April 7, 2016

INDUSTRY FOCUS

Plotting a course for yachting The yachting industry is almost unrecognisable from 20 years ago.

There has been significant investment in marinas and yacht services, as well as in infrastructure to serve superyachts for refits. But is that it? Where can the sector seek new growth?

There are a number of initiatives already in the pipeline – like the new marina at Sa Maison – and others that are not – like a breakwater across Marsamxett. But overall, stakeholders across the industry seem positive about the future.

Melita Marine’s managing director Pierre Balzan remembers what the scene was like when the company was established in 1989: “Malta was a landmark destination for commercial ships, building on the traditions passed down from the days when Malta’s dockyards played host to the Royal Navy’s Mediterranean fleet. Commercial yachts were assured of a high quality service from the many experienced people working in the industry.

“But the superyacht industry per se had not been developed locally, although even back then there

were three yards capable of handling superyachts. It is something of a testament to their reputation that all still operate today, although only Melita Marine Group is still under original ownership,” he said.

The growth of superyacht facilities could only come once there was appreciation of the fact that superyachts were not just a prettier form of commercial yachts.

“Our first priority was to start investing in commercially-trained people who could help establish a culture of excellence – bringing everybody involved round to thinking ‘white boat’ standards at all times,” he added.

“When starting out, the yards themselves reminded us of the uphill struggle upgrading the level of services and facilities would be.

That said, the number of repeat

customers and clients opting to winter in Malta make it clear that we are on the right track.

“Furthermore a growing number of yachts of increasing length are coming specifically for quality repairs or refits, testimony to the efforts being made to optimise facilities and services.”

He stressed that the superyacht industry would grow in Malta as long as stakeholders keep listening

to clients and improving, a point also taken up by Marc Calascione of RLR Yachting.

“As someone who has experienced the superyacht industry first hand after a bout in that world, we can be assured that the potential is very real for Malta to reap reward by being a destination that owners and crew would consider in their re-fit and winterising plans. But although we have the geographical

e Business OBSERVER

|

April 7, 2016

9

INDUSTRY FOCUS

and financial facilities available, we are far from ready to provide the seriousness and professionalism of the necessary calibre,” he said.

Of course, superyachts are a high value-added economic sector but yachting encompasses a number of other activities. Creek Developments, which operates the Msida and Ta’ Xbiex Marina, only caters for boats of up to 22 metres in length, but a number of its berths are used by foreign visitors.

“Malta is a very popular destination for yacht owners, with an easily accessible location, mature yachting support service infrastructure, good weather year-round and crystal clear seas. There will always be strong demand for sheltered longterm berths, such as ours, because once boat owners take the decision to pay marina fees, they rightly expect their boat to be safe in all weather,” Sarah Gauci Carlton, Creek’s commercial manager, said.

For years, there were not enough berths for locals, let alone visiting foreigners, but this should become a thing of the past with the planned new marina in Sa Maison. Ms Gauci Carlton had advice for any new operator, however: “Focus on a continued high quality product rather than aiming at high volume, to ensure that Malta does not become a victim of her own success.”

“With a completely refurbished marina, we listen to our customers and continuously adapt to the demands of the market to ensure satisfaction, adding new facilities all the time. It is very satisfying when long term visitors return, year after year, bringing friends with them on each occasion, or when a visitor, who has travelled all over the world on his yacht, comes into the marina office and says, ‘Wow!’” But the development of new marinas depends on providing crucial all-weather crucial shelter – and although the Chinese MOU signed with the Maltese government had envisaged a breakwater across Marsamxett to create safe berths, nothing more has been heard. She admitted that the breakwater would be a major investment due to the depth of water and the weather conditions that it will need to withstand.

“Notwithstanding certain drives by yacht charter companies and maritime institutes to encourage youths to join this exciting career prospect, uptake remains relatively flat” “Any assessment of the worth of such a project will need to balance the environmental impact of reducing the flow of oxygenated water inside the bays, and the resulting effect on both the marine environment and the high density residential and commercial areas around Marsamxett, against the improved shelter for yachts berthed in Marsamxett,” she cautioned.

Joe Aquilina of BJ Marine Malta agrees that the berthing situation has seen huge improvements in recent years and is no longer a barrier to boat ownership. And the loss of hardstanding facilities on Manoel Island has not caused any problem: “There is a very efficient and professional yard on Manoel Island which can take hundreds of boats every year not to mention many smaller yards inland,” he said.

This infrastructural ability to service demand is vital for the company, which sells yachts from its offices at Grand Harbour.

“Certain people keep a boat for a lifetime and this is certainly feasible

and has its merits. Very commonly, however, just as with cars or houses, peoples’ needs outgrow their boats and they decide to upgrade. We organise trade-ins for many returning customers whose families are growing and after two years decide they need something bigger. There are also people who want to make the change from sail to power and even those downsizing in their later years to something more manageable. On average our customers change their boats about every three to seven years,” Mr Aquilina said.

Some aspects of the yachting scene are innovative, like Azure Ultra, whose fractional boat programme has been “an unprecedented success”, according to its managing director Perry Newton.

The new venture was set up by the Azure Group, a European boat programme and fractional boutique-property company whose next venture is supercars.

The company will tap into its parent companies to ensure that it can

cope with demand: “The key is to under-promise and over-deliver!

We are well established and ahead of the game. Our parent companies hold major assets allowing us flexibility and adaptability,” he said, adding that as with many companies, the key to success lies with its people.

“Our skippers are the most experienced, competent and compliant in their field. Customer care and health and safety are vital and we demand absolute discipline. Our teams are passionate, proficient in sales, marketing and promotion,” he said.

More traditional charter is also now well-established. Niki Travers Tauss of Esprit Yachting and Strand Marine said the past 24 months saw considerable increase in demand in this sector.

However, there have been changes and although the market remains predominantly sailing yacht based, he has seen marked increases both in high-value motoryacht charters and a significantly

growing trend in bareboat ‘Rib’ day charters by Maltese individuals.

“Local companies have been prompt to react and have increased their fleets to meet demand. In fact Strand Marine will operate three brand new Ribs for the 2016 charter season,” he said.

Running a charter operation in a small market has its own challenges and he admitted that economies of scale come with numbers “and only a handful of operators are established with dedicated charter fleets”.

However, new business models have been created to cater for these aspects: there are programs which allow individual yacht owners to form part of promotion networks, taking advantage of the economies enjoyed by the larger charter marketing companies.

“We recently launched the Azimut Charter Club which allows owners of Azimut Yachts to benefit from our industry position, market reach and efficiencies in charter booking and yacht turnaround times.

“Most owners to date do not look at yacht chartering in terms or recouping investment, but rather as a way to reduce annual operating costs, this especially in the context of new large yachts. Clearly this is mainly dependent on how competitive one’s charter rates are and how available and ready for charter the yacht is.

“In the segments of sailing yachts and Ribs one may indeed look at return on investment in some cases where a proper charter management company manages the promotion and running of the charter operations,” Mr Travers Tauss said.

As with all sectors, growth brings human resource challenges and he pointed out that captains and crews form part of the skills gap.

“Notwithstanding certain drives by yacht charter companies and maritime institutes to encourage youths to join this exciting career prospect, uptake remains relatively flat. Possibly candidates do not correlate the fact that most superyacht captains and crews very frequently start their careers as general purpose deckhands aboard day charter yachts!”

10

e Business OBSERVER

| April 7, 2016

INTERVIEW

London’s eye still set on EU Former Lib Dem MP and Foreign Office Minister JEREMY BROWNE is lobbying institutions and countries on behalf of the City of London Corporation, trying to explain why the UK should stay in the EU. He told VANESSA MACDONALD that, although London would undoubtedly adapt to leaving, staying in was clearly the better option.

You were appointed for three years.

But the referendum is going to be held on June 23. Will you be out of a job?

The referendum is the biggest political event in the UK context in my lifetime. It has more fundamental implications than a general election.

It will have more of a dramatic impact on Britain if we decide to leave than if we vote to stay. An affirmation of the status quo is inevitably less profound in its consequences than a big change.

The role will differ depending on the scenario but there is an important role either way.

The debate that takes place in Europe matters to the City of London and we need to have a regular dialogue with partners across Europe, whether they are businesses or finance ministries or foreign affairs ministries or central banks or media. That strong partnership arrangement with all the interested parties across all 28 member states would exist whether or not there is a referendum.

If we vote to stay, which appears the more likely scenario, there is a big agenda around European competitiveness, growth and job creation, the development of the single market, the capital markets union, the digital and services markets and even free trade agreements – most immediately with the Americans.

There is a real opportunity to add dynamic power to that agenda, with the City of London as part of that debate. If the UK votes to leave, the City of London will need to define what it is to be Europe’s pre-eminent financial centre without being in the EU.

The City of London will not disappear if we vote to leave the EU. There is a whole range of reasons why businesses have chosen to locate and expand in London, reasons that will not change, from the fact that we are Englishspeaking to a wider political, cultural, legal and economic culture in favour of flexible labour markets, competitive tax rates.

Opinion polls show 45 per cent want to stay but there are still 13 per cent undivided…

There is still three months to go.

Our general election campaigns are normally a month long, formally.

So there is still a long way to go.

There is quite consistent reason to believe that young people have a high propensity to support Britain

“e City of London will not disappear if we vote to leave the EU” staying in the EU, while older people are typically more in favour of Britain leaving.

This is interesting because in every election I have followed the attachment to the status quo gets greater the older people get, rather than looser. It may be that older people have an attachment to the previous status quo – from 40 years ago!

It is also hard to know what the turnout will be. In general elections, younger people have a much lower propensity to vote. So if there were compulsory voting, the majority would probably vote to stay in but in a low turnout scenario, the ‘Leave’ campaign would possibly win as those who want us to leave are more motivated to go and vote.

There are quite big differences between different parts of the UK: London is much more supportive of staying in the EU than the rest of the country.

Some factors are particular to Britain. The fact that we are an island country and that we were not invaded for centuries affects the psychology of our country compared to many in the EU. On the

other hand, there are some factors that are more general.

Across the Western world and mature democracies, there is increased alienation between people and the governing elite and less willingness to take on trust the judgment of the governing elites – a gap between the governed and the governing.

There is a sense of anxiety about the effects of economic change and globalisation, and about the effects of social change… There are people who feel that power is unaccountable and that their living standards are not rising in a way that they hoped or expected.

All of these factors are in play.

That makes it hard to predict the outcome.

If you lined people up in traditional positions of authority – CEOs of big businesses, vice Chancellors at big universities and other high-status roles – the strong majority of opinion is that we should stay in. But in a referendum all votes are equal…

What is the relationship between the City of London Corporation and Greater London mayor Boris Johnson. He recently said: “London would continue to flourish outside the EU and flourish mightily”. Doesn’t that undermine your arguments?

(Long pause) We have a perfectly good relationship with him. He is the mayor of Greater London for the next few months. He is a charismatic spokesman for the whole London metropolis and is very well known internationally.

The City of London takes the opposite view from Boris Johnson on the referendum. We are a vibrant longstanding democracy,

e Business OBSERVER

|

April 7, 2016

11

INTERVIEW

and the whole point of having a referendum is that arguments on both sides can be examined. I don’t think it undermines our arguments. He puts forward his and others put forward theirs.

What would happen in the event of a ‘Leave’ vote? Would it mean the end of the City as we know it?

A partial or total lack of access to the single market is a factor that weighs heavily on the minds of businesses and persuades most of them that we would be better staying in the EU. Some businesses are anxious about what they see as the excessive inclination of the EU to regulate beyond what is necessary to make the market operate effectively. And maybe some businesses feel that the EU’s political culture is too willing to go down the path of greater regulation and bigger government and more protectionism.

But the prevailing dominant view is that if you balance these factors, then the benefit would come from staying the EU. What would Brexit cost in the short term?

Some say the transitional impact of leaving the EU would be very damaging but others think it will not and that it might not have a big impact on us at all in the medium term.

But in the first two, three or even 10 years, there will be added effort and costs associated with the transition and the new arrangements that have to be put into place.

Some people may feel that this is not a reason in itself to stay in.

But it is a big consideration and businesses are trying to make contingency plans now. But it hard to do that when you don’t know what the ‘out’ scenario will look like in practice.

The London Stock Exchange is going through its third attempt to merge with Deutsch Bourse. This is clearly not just a reaction to Brexit but is it a way for the financial activity to keep a foothold in Frankfurt?

“ere are some irritating aspects of EU membership. But the dominant – and not just the majority – view is that the benefits of being in the EU substantially outweigh the minuses” JEREMY BROWNE PHOTO: UK HOME OFFICE

You would be better off speaking to the LSE as I don’t want to put words into their mouth.

But I think there is a danger of seeing things too much through the prism of the referendum. The activity in the City of London has not been put on hold until after June 23 although, having said that, as we get closer to the date, companies could hold off on decisions which are not that time-sensitive, waiting to see what happens.

The difficulty is that you are not choosing between two prospectuses. The EU itself is evolving so there is not absolute certainty about what ‘Remain’ will look like in 10 years’ time. But there is a lot more certainty about what ‘Remain’ looks like in 10 years’ time than what ‘Leave’ looks like in two years’ time.

People are not making a fully informed decision as the facts about ‘Leave’ do not exist in absolute form as that would trigger negotiations.

The Lisbon Treaty envisages a formal decoupling process taking two years. But how many of the EU arrangements when the UK was a member would apply if the UK

BREXIT IN FIGURES ■ 75 per cent of the CFOs from FTSE 350 and other large private companies backed ‘Remain’ in Q1, up from 62 per cent in Q4 of 2015. (Deloitte) ■ 83 per cent of CFOs thought the level of uncertainty facing their business was above normal, high or very high (64 per cent end 2015), the highest level in over three years. (Deloitte) ■ 26 per cent of firms have contingency plans for Brexit, with 53 per cent making no plans and the rest declining to answer. (Deloitte) Polls on April 1 showed 45 per cent in favour of ‘Remain’ and 42 per cent for ‘Leave’, with 13 per cent undecided. (FT) ■ Brexit could cost the British economy €126 billion and 950,000 jobs by 2020. (Confederation of British Industry) were no longer a member? Would we have to negotiate every single agreement made through the EU in the last four decades from scratch?

If that were the case, then two years doesn’t feel like very long at all.

Wouldn’t there be any advantage for the UK to distance itself from the EU, being told what to do with its VAT levels, tax rates and harmonisation and so on?

There are some outspoken businesses and businessmen who support the view in your question.

There are some irritating aspects

of EU membership. But the dominant – and not just the majority– view is that the benefits of being in the EU substantially outweigh the minuses.

When we had the referendum in Scotland, I never accepted the argument that it could not survive as an independent country. The question was not whether it was possible but whether it was preferable.

In the UK context, is it viable for Britain to have a viable future as an independent non-EU country? Yes, it is. We are the fifth biggest economy in the world and we have a lot

of global reach which counts for a lot. We have one of the biggest militaries in the world and one of the five permanent members of the UN Security Council. We have a significant global role.

But the question is whether it is preferable. The dominant view in the City of London is “No, it is not”.

This is also true in terms of our outlook as a country and what it says about our desire to have strong binding friendships with other people in our own continent – rather than signalling retreat from the wider world.

Britain is traditionally an outward looking country and within the EU, we make strong arguments for a less protectionist, more freetrading, outward disposition than many other member states.

It would be harder for us to sustain our capital city as Europe’s pre-eminent global hub city if the host country, the UK, is retreating from the supranational organisation on its own continent.

Europe has a very big competitiveness and growth challenge. We have seven per cent of the world’s population and it is shrinking rapidly. And we have 20 per cent of the world’s economy and that is also shrinking rapidly.

We have some fairly big problems in some parts of Europe with low economic growth, high public debt and high unemployment.

That obviously also matters to the City of London. And it is important for us to talk to other likeminded people about how we can drive that agenda forward.

The City of London is built on foundations of centuries of consistent impartial application of the rule of law, which gives solidity and reliability to all of the business that takes place there at the moment.

London has a constant capacity for reinvention and making itself relevant to the issues of the time.

In the 1980s, the City of London was much more parochial and inward looking. It has undergone fundamental change in a generation and there is no reason to think that it cannot adapt to any situation that arises.

12

e Business OBSERVER

| April 7, 2016

CASE STUDY

Frank Salt: from north to south As Frank Salt Real Estate continues to expand its reach with new branches in various parts of the island, Jo Caruana gains expert advice from three Frank Salt consultants as to the best property investments to make across Malta.

The rules of property investment are changing.

Today, those keen to invest aren’t limited to purchasing property in the areas that traditionally ensured a return. Today, Malta promises a world of possibilities, with increased demand for residential and commercial spaces in both the south and the north. In fact, it is here that potential has grown most exponentially.

In response to that demand, Frank Salt Real Estate has boosted its presence in the south, with a new branch scheduled to open its doors in Cospicua, as well as a larger branch in Fgura and the ongoing development of the wellestablished Marsascala branch.

This will give the company increased expertise in the area, with over 20 consultants working across the south of Malta.

“The south is more in demand than ever before,” says Marsascala branch manager Omar Xuereb.

“Marsascala is definitely the area that’s most soughtafter at the moment, quickly followed by the Three Cities, Kalkara and Xgħajra.”

Mr Xuereb believes there are many reasons why the south has experienced such a spike in demand but stresses that the region’s unique character is still its most attractive asset. “ Potential buyers love the personality found here – from the backstreet houses of character, to the smart apartments with open views of the sea; there’s something for everyone and for everybudget.”

Among the most popular developments is Ta’ Monita – a special designated area that, while modern, blends beautifully with its surroundings.

Other developments are also planned to showcase the best of the region, including the ex-Jerma

ONE OF THE FRANK SALT PROPERTIES IN MELLIEĦA.

Palace Hotel and a further 20 new sites being developed in Marsascala alone.

“Kalkara and Smart City have really become gems of the south, while Xgħajra continues to wow as one of the most unspoilt parts of the island. I truly believe that this beautiful seafront village will continue to become more and more popular with developers and investors in the years to come,” Mr Xuereb continues.

“Now really is the time to seek out opportunities here.”

Meanwhile, up north, there are also increasing opportunities for investment.

“The north has so much to offer, both from an urban and a rural perspective,” says Patrick Xuereb, Frank Salt Real Estate’s northern regional manager.

“For instance, those eager to enjoy the area’s natural treasures will be impressed by the abundance of archeological remains and natural landscaping found here, as well as sites such as the Park tal-Majjistral, which is a sixkilometre stretch of coastline dedicated to conservation as per the European Habitats Directive. But there’s so much more to the region too, including some of the country’s best restaurants, bars and

leisure facilities. All of this adds so much value to what the north has to offer,” Mr Xuereb smiles.

He goes on to explain that the north is also renowned for having the best sandy beaches, including Mellieħa Bay, Ġnejna Bay and Paradise Bay. “This makes living in the north an attraction in its own right and it’s ideal for couples, families and those on the hunt for a holiday home.”

The north has certainly secured its reputation with both local and foreign buyers, while its many draws have ensured it guarantees a good return on any property

acquired in the area – whether by way of capital appreciation or rental investment.

“The affordability of the north, coupled with the very high standards of finishing promised by the new and upcoming developments here, make it a very safe option whatever you’re looking for,” Mr Xuereb continues.

“And, at Frank Salt Real Estate, we were certainly quick to understand that; we have two very established branches in St Paul’s Bay and Mellieħa, both of which are backed by consultants with 18 years experience in this part of the island.”

e Business OBSERVER

|

April 7, 2016

13

CASE STUDY

As for commercial property, there are also increasing investment opportunities in the north and south.

“In the south, Smart City, for instance, is now 90 per cent occupied and plans are in place to build several new blocks so as to create further office space here,” explains Rita Schembri, Frank Salt Real Estate’s commercial properties manager.

“Increased activity at the Freeport has also upped the demand for more commercial property in the south; we have already witnessed increased demand for warehousing projects in and around the Freeport region.”

New business sectors have also created fresh demands. “For instance, the aviation industry has

crafted niche opportunities for those with commercial properties in and around Luqa,” continues Ms Schembri.

“This has, in turn, also upped the need for residential property in this area as people – and especially foreigners – are eager to live as close to their workplace as possible.”

Meanwhile, the north is also experiencing a revival from a commercial perspective, with ‘huge’ demand for restaurants, hotels and guesthouses.

“Well-priced properties of this sort are usually sold or leased within days of coming on to the market. This is all down to the increased number of tourist arrivals, which has created more opportunities for those eager to open a

business in this part of the island.

Plus, office space in the north is also sought-offer,” Ms Schembri says.

“This is thanks to the increased number of foreign residents choosing to buy in the north and their need for office space to be close by.

“Wherever people are based in Malta, the trends clearly show that they want to live and work within easy distances, so this is creating demand for commercial properties in places we haven’t really seen it before. This is a trend that I expect to continue.”

So, commercial or residential, the choice in Malta really is plentiful and the investment opportunities exciting. All that remains to be seen is: will you go north or south?

TOP TIPS: INVESTING IN THE NORTH AND SOUTH ■ The south: Thinking of purchasing a property down south? Marsascala branch manager Omar Xuereb thinks you’re on to a winner: “There’s so much available to you here, including character houses, traditional Mediterranean living and great budget buys.

Property prices here are still the cheapest anywhere on the island, so you can invest today and make an excellent return within just a few years.”

■ The north: Hoping to move up north? Frank Salt’s northern branch manager Patrick Xuereb shares

his suggestions for successful investment opportunities here: The north really does offer the best possible options for capital return as demand always exceeds supply. But, aside from invest benefits, the north is also a really great place to live with something for everyone – from the cosmopolitan allure of St Paul’s Bay to traditional Maltese life in Mellieħa.

“Whatever the decision you take, you will be making a sound investment in the north and we will be more than willing to help you find your perfect property.”

RITA SCHEMBRI, PATRICK XUEREB (CENTRE) AND OMAR XUEREB

e Business OBSERVER

|

April 7, 2016

15

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

Editorial Vanessa Macdonald, Assistant editor, Times of Malta.

EDITORIAL

Decoupling banks from sovereign risk The government put a brave face on the impact on its treasury operations should domestic banks reduce their take-up of Malta Government Stocks, pointing out that, once it had a Budget surplus, there would be less and less debt to cover.

The issue may not be a matter of choice. The head of the Single Resolution Board Elke Koenig is proposing to cap the amount of sovereign debt that eurozone banks can hold.

The rationale behind the move is clear: regulators are very uncomfortable with too-strong links between banks and their host governments. And with good reason. Just take Greece and Cyprus as an example of how the one can bring the other to its knees.

Unfortunately for Malta, the island would have to comply – even though the government escaped the melt-down relatively unscathed and local banks are still reporting healthy profits.

The market here has been shifting of its own accord. ‘Individuals’ held 33.36 per cent of the €5.1 billion stock of fixed rate MGS in 2014, but this fell to 29.57 per cent in 2015, according to the Treasury. And MGS held by local banks also fell, from 31 per cent to 28.54 per cent.

Let us make no mistake: MGS are still the government’s main cover for its debt, with the total amount outstanding increasing by 72 per cent since 2008.

But banks are looking elsewhere to invest their money. The percentage of local bank assets invested in MGS has been falling over the past five years, from 11.1 per cent in 2011 to 8.8 per cent now.

The problem is that banks, as any other investors, are looking for better returns in this low interest rate scenario, but this implies considering riskier investments.

Until the global financial crisis, government stocks – not just Maltese ones – were considered so safe that they do not even require

banks to make provisions against them as they were seen as government ‘loans’, and like government loans, did not require security. Denominated in euro, they were lumped together as safe ‘euro risk’, but the ‘risk’ part of that equation is now viewed with deep suspicion by banks driven to bail-outs.

What options would local banks have? Their risk appetite may be lower than ever but their liquidity is higher than ever.

The sovereign debt of other member states is more risky and offers a negligible interest rate.

And the rock solid reliability of MGS meant that banks with a high loan-to-deposit ratio could afford to encourage deposits by offering good rates for its fixed rate packages. Would that have to change?

And who would take up the slack for MGS issues, not in the short term but in the longer term?

One of the major problems unique to the Malta Treasury is that big overseas players would not be interested in taking up a few million here or there. Many do not get out of bed for less than half a billion.

Can we rely on non-residents and ‘others’ to keep taking up more and more?

In this low interest rate scenario, there are enough takers for local government stocks. But only a fifth of Malta’s outstanding MGS stock matures in over 15 years’ time – relatively stable given the local propensity to buy-to-hold. Over a third matures in between one and five years’ time and, Budget surplus or not, just about all of it will have to be rolled over.

In the past, the issue and take-up of MGS was so routine it was barely reported. It suited both government and banks. What would happen if that changed?

Publishers Allied Newspapers Ltd. Content House Group Ltd.

Allied

N E W S PA P E R S

A M E M B E R O F T H E A L L I E D G R O U P O F C O M PA N I E S

Advertising Enquiries Tel: 21 320713 E-mail: info@contenthouse.com.mt Advertising sales Petra Urso Publications sales manager Kurt Cauchi Advertising sales executive Lindsey Napier Marvic Cutajar Advertising sales coordinators Printer Progress Press Ltd.

Progress PRESS

A M E M B E R O F T H E A L L I E D G R O U P O F C O M PA N I E S

BUSINESS OPINION

Preparing to live happily ever after James Portelli When it comes to pensions, are we perhaps busily arranging deck-chairs on the Titanic as it approaches the iceberg?

Group-breaking legislation in pension and social reform took place in Malta between 1948 and 1956. Some amendments to social insurance contributions were introduced between 1979 and 1987 and the Special Funds (Regulation) Act 2002 later laid the ground for supplementary occupational pensions schemes.

The 2006 amendments to the Social Security Act introduced the initial framework for private pensions and rolled out public consultation on pension reform. Ten years – and many meetings – later, the impact is perhaps no more than cosmetics on an old lady despite the enactment of the Retirement Pensions Act 2015 applicable from January 2016!

The Pension Strategy Group in mid-2015 issued a raft of some additional 27 recommendations; some of them no more than reiterations of earlier recommendations dating back to 2005.

The maximum weekly contributory pension entitlement [Pillar 1] is just shy of €230 – less than €12,000 annually. Employees contributing towards a state pension need to ask: “How sustainable would this pension be a few years from now?” The answer is obvious.

Recent reference to Pillar 2 indicates that the government and Opposition are poles apart. The 2016 Budget, referring to inducements to voluntary employer contributions,

moves away from the previous government’s proposals of an obligatory Pillar 2 scheme. The previous government was not reinventing the wheel with this proposal.

Pillar 2 is generally compulsory in as far as the employer is concerned.

Tweaking this would sit better as a Pillar 3 amendment.

Pillar 3 was ushered in by the Minister of Finance in November 2014 as a voluntary contribution.

In a nutshell, it is primarily aimed at lower income earners contributing towards retirement but not necessarily towards the lowest and youngest salary earners. Why? Let us consider some facts.

The average basic salary in Malta currently stands at less than €18,000 annually and the median annual income per household does not exceed €24,000. In households with earners possessing tertiary education the average income per household can increase by more than 50 per cent.

The savings to earnings ratio varies by almost six per cent from just over one per cent of earning for lower income earners to a savings of around seven per cent of earning for higher income earners. So, by implication, most individuals or households in employment (i.e. not self-employed) and below the age of 35 years, can on average set aside less than €500 annually.

On average, debt per household is of around €35,000 annually (exceeding €40,000 for under-35s in employment) and marginally higher for households with earners possessing a university degree.

Following the introduction of Income Tax article 57, a maximum

“[A voluntary occupational pension] would sit better as a Pillar 3 amendement” annual tax credit of €150 (15 per cent of annual contribution) is allowed on Pillar 3 contributions.

Effectively there is no tax incentive for persons to contribute more than €1,000 annually. Furthermore, at current returns, it is unlikely that €500 annually would yield more than €15,000 at maturity of a 20 year retirement policy or less than €25,000 at maturity of a 30-year retirement policy; a pension or peanuts?

So whereas the private pension contributors’ demographic seems

to lie with persons above 35 years (i.e. with lower or decreasing personal debt) and earning more than the national average, the incentive seems to target a lower age band or income bracket. We’re shooting low and offering even less.

A life assurance policy is one of the products that can be purchased to build a private pension. There are two types of products around which a pension plan can be structured by insurance companies, i.e. with-profits and unit linked. The latter may be dangerous since the

underlying capital or saving is not protected. Extensions such as disability and accidental riders all serve to enhance the life insurance product. Needless to say, one needs to weigh the opportunity cost on pure policy value against the premium spent on such extensions. In addition to this, an applicant for any life assurance policy with a savings element (including pension products) needs to read through any disclaimers presented by the insurance company in its literature or on its website particularly on assumed rates of return and net present values.

Not all life assurance policies are eligible for a tax credit. The way insurance companies operate the fiscal framework may differ. Given the long-term nature of these products, clients should familiarise themselves with caveats tied to tax credits particularly on the implications of the client liquidating (surrendering) a retirement policy early. The Inland Revenue regulations, for example, seem to have overlooked this very important issue.

Achievements to date are disproportionately low compared to the effort that has or should have been put into pension reform.

More thought and structured, decisive action is required by our pension think-tank.

One would be ill-advised not to set money aside under Pillar 3 – but shoulders need to rub at the drawing board to boost effective demand. portellijames@gmail.com James Portelli is a chartered insurance practitioner [views expressed are personal].

e Business OBSERVER

|

April 7, 2016

17

NEWS

Malta 16th in EU on long-term care % of GDP 4.0 4.6 9 4.5 3.8 8 2.8 3.9 7 6 5 4 3 2 1

Long-term care costs (public spending) Increase 2010 - 2060 2010

2.9 3.0 2.5 2.3 2.3 2.2 1.9 1.7 1.8 1.8 2.3 1.9 1.8 1.1 1.4 0.9 1.4 1.6 1.0 1.4 1.4 1.9 1.6 2.0 1.4 1.1 1.2 1.2 1.1 1.1 1.2 0.8 0.7 0.7 0.5 0.7 0.7 0.6 0.8 4 0.8 0.8 0.7 0.4 0.4 0.5 0.3 0.5 0.5 0.3 0.3 0.1 4 4 0.2 0

0

Denmark Netherlands Sweden Finland Belgium France Euro area (EA-17) EU-27 Luxembourg Germany Slovenia Italy Austria United Kingdom Greece Ireland Lithuania Malta Poland Romania Czech Republic Spain Hungary Latvia Bulgaria Estonia Slovakia Portugal Cyprus

Malta spent 0.7 per cent of its GDP on long-term care costs in 2010, and is forecasting an increase of 1.1 per cent between 2010 and 2060.

A report on the European economy by the European Economic Advisory Group and CESIFO, a Munich-based research institute, said the EU average in 2010 was 1.8 per cent, forecast to grow to 1.7 per cent.

The highest spending was in Denmark (4.5 per cent of GDP) and the lowest in Cyprus (0.2 per cent of GDP).

Cesifo said that there was generally the probability that an increasingly large sector of the elderly population would require long-term care, with the steepest rise anticipated in Scandinavian countries.

“That care can either be financed through the development of an insurance system featuring higher payments by current mid-generation individuals, or through the rigorous enforcement of a means-tested and means-based payment system, designed to mobilise the locked-in assets of the elderly,” it said.

The institute pointed out that most medical expenses occurred in the last years of life, with advances in medical technology and more expensive treatment options pushing up costs.

.

Source: European Commission and Lipszyc et al. (2012)

18

e Business OBSERVER

| April 7, 2016

STOCK MARKET REVIEW

MSE Share Index extends 2015 rally

Edward Rizzo

LOMBARD’S CYPRIOT SHAREHOLDER HAS PUT ITS SHARES UP FOR SALE.

Following the exceptional 33 per cent surge in the MSE Share Index in 2015 (the best annual performance since 2005 on the highest activity since 2006), during the first three months of 2016, the Maltese equity market advanced by a further three per cent to close the first quarter of this year at 4,563.155 points.

On March 10, the Index closed just shy of the 4,600 points level – the highest since mid-April 2008.

Individual equity performances were somewhat mixed with 14 positive movers and seven share prices closing lower. Among the positive performers, it is remarkable to note that eight equities registered double-digit gains in only three months. Moreover, as I highlighted in last week’s article, trading activity across the equity market continued to improve and rose by a further 27.4 per cent to €26.5 million compared to the value of €20.8 million in Q1 2015.

Excluding Santumas Shareholdings plc – which rallied by 30 per cent on insignificant volumes and with no major impact on the MSE Share Index given the company’s miniscule market capitalisation at €4.8 million – the two IT companies registered the strongest gains.

In sterling terms, 6PM Holdings plc surged by 21.4 per cent, closing the quarter at a new record level of £0.85 although the impact of this on the overall MSE Share Index is also minimal given 6PM’s very low weighting of 0.5 per cent in view of its low market capitalisation. However, adjusting this performance for currency fluctuations is important for local investors. In fact, due to the

weakening of sterling against the euro as a result of the upcoming Brexit referendum, the increase in 6PM’s equity in euro terms is reduced to 14 per cent.

In a newsletter sent to all shareholders a few weeks ago, CEO Ivan Bartolo (who also owns over 15 per cent of the company) indicated that with respect to the upcoming annual general meeting, during which shareholders will be asked to approve the 2015 financial statements and other resolutions, shareholders should be pleased with the company’s performance.

This surely helped investor sentiment in recent weeks.

However, the equity also surged in the final days of March following the surprise announcement of an upcoming takeover bid for the company. 6PM informed the market that third parties have shown an interest in the acquisition of shares currently held by shareholders holding a substantial shareholding in the company and an extraordinary general meeting is being convened on April 28. Subject to a successful due diligence, the interested parties have also expressed their intention to launch a voluntary bid for the acquisition of all the issued share capital of 6PM (See also story on page 6).

Following the 116 per cent uplift during 2015, the share price of RS2 Software plc gained an additional 18.7 per cent during the first three months of 2016. By the end of the second week of March, RS2’s equity surged by 28.5 per cent from the year-end level of €3.16 to an all-time intra-day high of €4.06. In fact, the equity ended up in positive territory for 15 consecutive days.

As the equity breached the €4 level on March 9, RS2 became the fifth largest capitalised company on the MSE with its market capitalisation even surpassing that of the longer-established company GO plc. However, following the unrelentless rally, the equity staged a sharp correction and dropped to an intra-day low of €3.28 in a matter of just five trading sessions until March 18 before recovering to end the quarter at the €3.75 level.

e Business OBSERVER

|

April 7, 2016

19

STOCK MARKET REVIEW

Very surprisingly, RS2 was the most actively traded equity during the first quarter of 2016 as €6.7 million worth of shares changed hands. The volumes traded in RS2 also surpassed those seen in Bank of Valletta plc which, apart from being the largest company listed on the MSE, also has the largest number of shareholders at just under 20,000 and has nearly twice the amount of free-float (in percentage terms) compared to RS2. Following the retreat in RS2’s share price in midMarch, the company’s ranking on the MSE moved back to sixth position with a market cap of €337.5 million – still a major achievement from the level of below €20 million until a couple of years ago.

Neither IT company has yet published their 2015 financial statements. As such, market participants will be particularly attentive to the upcoming announcements in the weeks ahead to verify whether the surge in both share prices to record levels is justifiable given their financial performances.

More importantly, however, given the ambitious strategies of both companies to expand internationally, analysts will be more attentive to the information being published on the business pipeline and progress being achieved in penetrating into new markets.

Senior management of both companies should be well aware of market expectations in this respect.

GO plc was also among the top performers during the first quarter of 2016 with a share price increase of 14.2 per cent. The telecoms company published a positive set of financial statements for 2015 and the directors recommended the payment of a final net dividend of €0.10 per share, representing an increase of 43 per cent over the previous year’s dividend.

On February 12, GO announced that it received a number of nonbinding bids from interested parties. The market is now eagerly awaiting the conclusion of the duediligence process and news on the identities of the interested bidders as well as the valuation attributed to GO. As such, the next few weeks and months will be particularly interesting for GO shareholders and the market in general given the possibility that the company may be delisted if a large percentage of the free-float shareholders

“Another major challenge… is the potential delistings that may unfortunately take place” were to accept the terms of the chosen bidder.

Another four companies registered double-digit gains during the first three months of 2016, namely, Malta Properties Company plc (+12.9 per cent), Malta International Airport plc (+11.6 per cent), Tigné Mall plc (+11.6 per cent) and Fimbank plc with a gain of 11.4 per cent in dollar terms. However, similar to 6PM, given the strengthening of the euro also against the dollar in the past three months, the adjusted return of Fimbank’s share price in euro terms diminishes to +7.5 per cent.

Among the three retail banking equities, Bank of Valletta plc edged 3.7 per cent higher amid continued strong trading activity of nearly 2.5 million shares for a value of just over €5.5 million, while both HSBC Bank Malta plc and Lombard Bank Malta plc suffered double-digit declines of 10.3 per cent and 11.5 per cent respectively.

The most notable development for BOV over the past three months was the issue of the second tranche of their subordinated bond issue

programme. Unfortunately, the bank failed to raise the entire €50 million on offer. While this may be the first time in several years that an issuer was unsuccessful in obtaining the entire amount, the reason for this is undoubtedly not as a result of the credit risk of the bank but surely due to the lengthy and complex application procedure.

The change in the application procedure as I had explained in detail in my article on November 19, 2015, at the time of the first tranche of BOV’s subordinated programme, was due to the fact that it was the first time that a subordinated bond issue was offered to Maltese retail investors following the change in legislation in July 2014 regarding the bail-in procedures across the eurozone. In the coming weeks, BOV will be publishing its interim financial statements for the six-month period to March 31, 2016 – an important event for the Maltese stockmarket since BOV is the largest company on the MSE. The share price of HSBC Malta dropped to its lowest level in 12

years amid more challenging conditions for the European banking sector in general and as the bank reported a 10.3 per cent decline in pre-tax profits during 2015 (after taking into consideration the effect of the non-recurring expenses related to the early voluntary retirement provision of €14.7 million).

Meanwhile, the decline in Lombard’s share price over the past three months should be seen in the light of the 36.5 per cent rally during the previous six months. On March 22, a long-awaited announcement was issued by Lombard Bank as it informed the market that the special administrator of Cyprus Popular Bank Public Co. Ltd (CPB), the largest shareholder of the bank, notified Lombard that it had approved the disposal of its holding of 21,396,558 ordinary shares (or 48.9 per cent of Lombard’s entire share capital) held in the bank. This is another important upcoming development for the Maltese banking sector as well as the stockmarket.

Following the amendment of the Transparency Directive by the European Commission and the removal of the obligation for companies to issue interim statements, it will be interesting to see how Maltese listed companies will ensure that consistent newsflow is forthcoming to enable market participants to make better informed judgements when investing in local equities. There is very

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned 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 to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned 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 RFC, 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 report. © 2016 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

clear evidence that regular statements and company announcements enhance trading activity and liquidity in financial instruments. In addition to this possible limitation of newsflow in the immediate future, another major challenge for the Maltese stock market is the potential delistings that may unfortunately take place should a number of takeover bids succeed on some of the companies being launched soon.

Given the significant improvement in liquidity across the local equity market and the concrete evidence of the interest by Maltese retail and institutional investors in investing principally in their domestic market, it is imperative that other companies come to the market to replace the ones that were delisted last year (namely Crimsonwing plc and Island Hotels Group Holdings plc) and others that may follow in the months ahead. This will ensure sufficient investment options for investors who may end up with additional liquidity as a result of the takeover bids.

Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

e Business OBSERVER

|

April 7, 2016

21

BUSINESS UPDATES

Holland America Line’s newest ship to set sail on April 8 The new MS Koningsdam of Holland America Line will set sail from Civitavecchia on her maiden voyage tomorrow. She will embark on a few Mediterranean cruises before relocating to northern Europe where she will be based in Amsterdam, offering a selection of fjords and Baltics cruises. In late October, Koningsdam will cross the Atlantic to begin Caribbean cruising in the winter months.

Koningsdam is the 14th ship in the Holland America fleet, the first of the line’s Pinnacle class of ships. At 99,500 tons, this 2,650-passenger vessel is the largest in the fleet. A second Pinnacle Class ship is scheduled for delivery in November 2018. The ship will feature two new types of cabins for the line: a family ocean-view cabin that sleeps five and single cabins for solo cruisers.

For music and entertainment, Koningsdam will have a new style of theatre and a stage that can be transformed. The Culinary Arts Centre, which offers cooking demonstrations during the day, will now turn into a new dinner venue at night. The ship also features Greenhouse Spa & Salon, fitness centre, casino, shopping, programmes for children and a digital workshop.

Contact local agents the Cruise & Travel group on 2122 2999 or cruise@cruise andtravel.com.mt for more information.

HSBC BANK MALTA STAFF MEMBERS AT KIDS IN DEVELOPMENT PROGRAMME (KIDS), ŻEJTUN

Top corporations join hands on CSR Day 2016 Their business interests may be varied and different but for one day nine leading organisations in Malta came together for the common cause of helping the vulnerable in society as part of the 15th annual Corporate Social Responsibility (CSR) Day. Hundreds of employees from HSBC Bank Malta, HSBC UK Contact Centre Malta (Swatar), AIS Group, Express Trailers Ltd, Farsons Group, Forestals Group, Maypole Group, Multigas Ltd, and Tumas Group, volunteered a day’s worth of work and lent a helping hand to a charitable home of their choice.

In the morning, all the participating companies and their representatives gathered at the official residence of the

President Marie-Louise Coleiro Preca, who greeted and thanked the volunteers for their contribution. A representative of the Arcbishop, Mgr Charles Cordina, was also present.

From San Anton Palace, the group went towards their respective sites and carried out various activities, ranging from paintwork and tiling to gardening and cleaning.

In no particular order, the chosen sites were: Richmond Foundation’s Kids In Development Programme (KIDs), Żejtun; Dar Qalb ta’ Ġesù, Santa Venera; Dar tal-Providenza, Siġġiewi; Inspire premises, Bulebel; Esther House, Cospicua; Helen Keller Resource Centre, Qrendi; and Dar Frate Jacoba, Marsascala.

22

e Business OBSERVER

| April 7, 2016

BUSINESS UPDATES

Six years of privatisation: a retrospective analysis Last week marked the sixth anniversary of the closure of the Malta Shipyards. The decision taken by the government of the day led to different reactions. Many pointed their fingers to the Fairmount Contract, yet it is more likely that such fate was driven by historic reasons. As Michael Cassar noted in Malta Drydocks 1963-2010, “the Malta Drydocks fortunes were continually being challenged by the winds of change that blew from abroad and ultimately made an irrevocable case for privatisation”.

The process of privatisation and subsequent lease to Palumbo has been criticised by many, yet the impact on the industry and local economy was significant. Over the years Palumbo Malta Shipyard has invested heavily in both human capital and machinery and adhered to international standards, ensuring very positive results.

The shipyard was and will remain subject to controversy. However, its key role in Malta’s economy, identity and history are undisputed. Moreover, the Palumbo takeover has ensured a continuation in Malta’s maritime legacy and a regeneration of the yacht and shipping industry, as well as placing Malta as a key strategic maritime hub. The recent investments in the yards by Palumbo are a positive prospect for further growth of the local maritime industry.

Relax in privacy at sea With summer just around the corner, many sea-lovers are already getting excited for their favourite season, and what better way to enjoy the serene Mediterranean Sea than to relax in privacy?

Chartering a yacht takes you to new horizons, giving you access to places that are otherwise unreachable or inconvenient, in luxurious yet affordable comfort.

Boatcare Trading Ltd has become the local expert in yacht chartering, offering a decade of experience in private charters and a choice of over 90 top sailing/motor yachts and Ribs and ensuring that you will get the best option for your cruise.

Whether you want to charter a boat for a day or for longer periods, stay round the islands, or travel overseas, we have the ideal package for you! The fleet currently ranges from 5m Ribs to 40m superyachts.

Whether you want to enjoy some quiet time with family and friends, organise a small but stylish wedding on a lavish yacht, or host a team-building event for your company, Boatcare will organise the perfect event, with all the details you wish for, including catering, water sports and more.

For more information about Boatcare Trading Ltd, visit www.boatcarelimited. com or call on 7938 8050.