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In last week’s article, I referred to an important leverage ratio that analysts and investors should consider when assessing the financial strength and soundness of a company before considering an investment. in bonds.

The debt ratio, also known as the debt ratio, indicates the percentage of assets financed by debt. The higher the ratio, the higher the degree of leverage and financial risk of a business, while a lower ratio is more desirable because it indicates a lower degree of financial risk.

The debt ratio is an important measure for most companies listed on the Malta Stock Exchange, given the large number of real estate assets held by a large number of Maltese companies.

The calculation of this financial ratio last week was made in connection with the recent publication of the prospectus by Mizzi Organization Finance plc in connection with the bond issue of 45 million euros. The total indebtedness of Mizzi Organization following the bond issue represents 0.4 times the aggregate value of total assets, which means that the total amount of assets is two and a half times the total debt of Mizzi Organization d ” approximately 130 million euros including the passive rental of nearly 15 million euros.

In addition to describing the strength of the Mizzi organization through this financial ratio, it is also important to assess how other Maltese bond issuers behave in this context. As such, the debt ratio has been calculated for all companies (excluding banks and insurance companies) whose bonds are listed on the main regulated market for MSEs.

The ranking shows that Plaza Centers plc has the highest debt ratio with a figure of 0.2 times at the end of 2020. Plaza sold one of its properties in September 2020 and the financial statements as of December 31, 2020 , indicate an overall debt of 7.7 million euros (representing bonds issued in 2016) and assets of just under 39 million euros.

Simonds Farsons Cisk plc also has a very high leverage ratio with annual financial statements as at January 31, 2021 showing a leverage ratio of 0.22 times. According to financial projections published a few months ago, this figure is expected to rise to 0.20 in the current fiscal year as at January 31, 2021, with total debt of 38.9 million euros and total assets. of just under 197 million euros.

Last week, Farsons released its interim financial statements, showing a strong improvement in its financial performance compared to weak results in the comparative period which was severely affected by COVID-19 restrictions.

The directors estimated that the group is well placed to achieve the financial objectives published in the financial analysis summary published in July, with a turnover of 91.7 million euros (equivalent to a growth of 25.6 % compared to the comparative period but a decrease of 11.4%) of the record turnover of € 103.5 million for the 2019/20 financial year); EBITDA of 19.3 million euros (i.e. a growth of 29.1% compared to the comparative period but a decrease of 15.1% compared to the level of 22.7 million euros recorded before the pandemic) and pre-tax profit of nearly € 10 million (compared to € 4.4 million in fiscal year 2020/21 and a record € 14 million in fiscal year 2018/19).

AX Group plc and Spinola Development Company Ltd (as guarantor of the bonds issued by Tumas Investments plc) also have such high debt ratios.

AX Group plc’s financial projections for the current year as at October 31 indicate that the group will have a leverage ratio of 0.23 times, with a total debt of 81.6 million euros and a total of assets of 347.6 million euros. Likewise, the guarantor of the Tumas bonds is estimated to have a debt ratio of 0.25 times as of December 31, with total debt of 58 million euros and total assets of 232 million euros.

Other hotel and real estate companies also have debt ratios less than 0.3 times, indicating that the aggregate value of total assets is more than three times total debt. These are SD Holdings Ltd (as guarantor of the 65 million euro bonds issued by SD Finance plc), Eden Leisure Group Ltd (as guarantor of the 40 million euro bonds issued by Eden Finance plc ), Stivala Group

Finance plc and Exalco Properties Ltd (as guarantor of the € 15 million bonds issued by Exalco Finance plc).

The largest issuer of non-financial corporate bonds in Malta is International Hotel Investments plc, with a total bond issue of 225 million euros. IHI has a strong portfolio of real estate assets in various countries, and although the absolute level of debt of 644.9 million euros at the end of June 2021 is well above that of all other companies, the ratio of Debt is also very high and is expected to be 0.42 times this year.

Incidentally, on August 31, IHI announced that it had submitted an application to the Malta Financial Services Authority requesting eligibility for the list of unsecured bonds redeemable in 2031. Information to be released by IHI – if regulatory approval is obtained – will allow analysts and investors to calculate updated financial ratios on the basis of the projects envisaged by the group of hotel companies.

Another company which is also expected to publish a prospectus soon is Hili Properties plc. However, the company will not issue any further bonds but has instead indicated that it is issuing new shares, presumably to finance further real estate acquisitions abroad, as reported in a number of recent press articles.

Hili Properties had an aggregate debt of just under 80 million euros as of December 31, 2020, against total assets of 149.6 million euros, which translates into a debt ratio of 0, 53 times. Hili Properties is a subsidiary of Hili Ventures, which is the guarantor of two bonds issued by Hili Finance Company plc. One of the bonds issued by Hili Finance (the € 80 million issued in 2019) is the largest corporate bond ever issued in Malta.

When analyzing the total debt of Hili Ventures, it is necessary to distinguish between bank loans and bonds issued as well as the value of lease debts, which are included in total debt in accordance with the accounting rule IFRS16. In addition, consideration should be given to the very high EBITDA generation of its wholly-owned subsidiary Premier Capital plc.

The debt ratio calculated on the entire Maltese bond market testifies to the overall strength of a large number of companies listed on the MSE. As an increasing number of companies use the capital market, investors as well as financial analysts will have access to a significant amount of data, allowing them to compare companies in specific economic sectors, which would be useful in deciding companies to which to gain exposure within a global investment portfolio.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, 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 was not disclosed to the named company (ies) prior to publication. It is based only on public information and is published for informational purposes only and should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and others concerned may not trade in the securities to which this report relates (other than the execution of unsolicited client orders) until the recipients of this report have had a reasonable opportunity to act. on this subject. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, hold interests in the securities mentioned herein and may at any time make purchases and / or sales therein. as principal or agent, and may also have other business relationships with the company (s). Equity markets are volatile and subject to fluctuations which cannot be reasonably foreseen. A previous performance is not necessarily indicative of future results. Neither Rizzo Farrugia nor any of its directors or employees accept any responsibility for any loss or damage resulting from the use of all or part of it and no representation or warranty is given with respect to reliability. of the information contained in this report.

© 2021 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

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Julio V. Miller

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