Article by David Curmi
The Malta Stock Exchange first opened its doors on the 8th January 1992 when the first ever trade took place. Contract note number 1 sits proudly in our office and was a trade in Local Development Registered Stock(the precursor to Malta Government Stocks). At the time trading took place once a week on a Wednesday afternoon and consisted only of trading in what are now called Malta Government Stocks. Meanwhile the first corporate bond listed was a five year Malta Lira 3m(€7m) 6.5% Gasan Finance bond issued in 1994 and maturing in 1998/9. Since that inaugural bond, the local corporate bond market has grown exponentially, reaching €1bn in issuance by 2014, €2bn in 2021 and €3.5bn so far this year.
This accelerating trend reflects an increased use of the local bond market by various issuers, numbering some 90 at the last count across 127 different issues. Currently the average size of issue is just under €28m with the largest bond issue being the 5% Bank of Valletta plc Unsecured Subordinated Bonds due 2030-2035, totalling €150m. The average coupon of the bonds in issue is now 4.9%, and is on an upward trend, reflecting primarily rising inflationary pressures, one contributing factor is brought about principally by the geopolitical tensions in Iran, and possibly to a lesser degree, increased competition for finance on the market. In fact coupons of new bonds issued in 2026 carry coupons of between 5% and 5.9% reflecting this upward pressure on rates. It is also interesting to note that whilst the corporate bond market has seen substantial growth over recent years, cash deposits at local banks also continue to rise each year, indicating that there is still a large pool of available cash that could be mobilised into new corporate bonds. In this respect 2026 is on course to be another strong year of issuance following the record issuance of more than €700m in 2025.
The intriguing statistic amongst all this issuance is that in the 34 years since the inauguration of the Malta Stock Exchange, there hasn’t been a single default. I dare suggest that this is a unique situation amongst any developed market and is highly unusual. One plausible deduction is that the issuers that have come to the market have strong financials with robust business models and have issued bonds that contain strong covenants which protect investors. The reality is somewhat different! Whilst there are indeed some blue chip companies on the local market that fit in well to the above description, this is not the main reason for the lack of defaults. There are other reasons. It is quite common, both in Malta and internationally, for corporate bonds to be unsecured. In such cases the use of covenants to add protection for investors becomes an important feature that often compensates for the lack of security. The use of such covenants is indeed growing in Malta’s corporate bond market though some are still light on protection. Still there are some bonds that can be better described as equity dressed up as debt. The lack of defaults, is therefore more likely to be down to Malta’s strong economic growth over recent years coupled with the strong property markets. I also believe that in a small market, and small country like Malta, there will also be a stronger incentive from the perspective of the entrepreneurs behind the bonds, to not permit, to the extent possible, a default. The reality here is that there are some 75,000 active accounts registered at the Malta Stock Exchange, representing the number of underlying investors buying, mostly bonds. Consequently the proximity between the investors and the borrower is very short and thus due to the size of Malta and closer business, financial networks, there could be a larger element of stigma surrounding defaults. This aspect is not present in international markets.
Whilst this has served investors well over the years it is not a guarantee. In fact many local investors are mistaken in their thinking that somewhere within the process that the MFSA undertakes there is a stamp of approval and quality that is almost itself a guarantee. The MFSA’s role is principally one of ensuring that the issuer qualifies to issue the bonds and has made all the necessary disclosures.
Consequently, investors cannot rely on either the MFSA or the “social stigma” to protect their investment. As can be seen in the table, and not surprisingly, the bonds issued by companies in the hospitality and retail sectors, as well as real estate and property development cover the lion’s share of bonds that are issued, accounting for over 53% of all bonds issued. This is a very high concentration and from an investors perspective needs to be carefully managed, especially when one takes into account the fact that investors are probably also exposed to the property sector through their own direct holdings.
Source: Curmi & Partners Limited
We have also seen an increasing number of “near misses” occurring in recent months with some issuers clearly struggling to generate sufficient cash to pay their interest or the redemption of their bond. At some point there will be an accident, a missed payment, a default. We have been fortunate enough to have navigated carefully to avoid this thus far, however with the increasing number of bonds being issued, which on balance is a good thing, the risk is growing. To my mind it is only a matter of time until a default happens and as the economy starts to show some stresses in certain sectors, we may not be too far away from this. Additionally the sectorial concentration brings with it the risk of contagion, whereas the concentration of issuers, the top 7 issuers cover almost half the total issuance on the market, is another factor to consider. It is therefore becoming increasingly important that investors are more diligent in their approach to selecting which bond to invest in. It is not a question of all bonds are equal and therefore the coupon is the determining factor. Nor is it the case that simply because a bond is secured it is safe. There are a number of unsecured bonds on the local market that are much safer than some of the secured bonds. One needs to assess the robustness of the issuer more closely than ever.
The emergence of the local corporate bond market as both a home for investors savings and as an alternative financing for companies is a positive development. However just as a property buyer carefully selects which property to purchase, using various metrics, so should a bond buyer do the same. There are bonds and there are bonds!
David Curmi is Chief Officer, Business Development and client relationships, at Curmi & Partners Ltd.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd, with registered address Finance House, Princess Elizabeth Street, Ta Xbiex, Malta XBX 1102, is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.