Market snapshotMarket climate
What types of debt securities offerings are typical, and how active is the market?
Debt security offerings in Malta are predominantly bond issues, as the Maltese bond market is highly active. The financial markets are regulated by the Malta Financial Services Authority (MFSA). Bond issues are vetted and approved by the Securities and Markets Supervisory Unit (SMSU) in the MFSA, which typically holds monthly meetings for the approval of bond issue applications, where multiple applications are up for approval for listing and trading on the Official List of the Malta Stock Exchange (MSE). Further, the MSE provides potential issuers with the possibility of listing on its secondary Prospects multilateral trading facility list.
In particular, the Listing Authority may refuse requests for admissibility to listing of securities:
- if it considers that an applicant’s situation is such that an authorisation for admissibility to listing of the securities would be detrimental to the interests of investors;
- in respect of securities already listed in a recognised jurisdiction (as defined in the Listing Rules issued by the Listing Authority) if an applicant has failed to comply with the obligations to which it is subject by virtue of that listing; or
- if it considers that an applicant does not comply or has not complied with the requirements of the Listing Rules or with any special condition imposed on them by the Listing Authority.
Describe the general regime for debt securities offerings.
The principal applicable rules for debt securities offerings are the Listing Rules, which may be accessed on the MFSA website. Other applicable rules include the Maltese Companies Act, Chapter 386 of the Laws of Malta and the EU Prospectus Regulation (2017/1129). The EU Prospectus Regulation repealed the EU Prospectus Directive (2003/71/EC).
Filing and documentary requirementsGeneral filing requirements
Give details of any filing requirements for public offerings of debt securities. Outline any requirements for debt securities that are not applicable to offerings of other securities.
Applicants for admissibility of debt securities to listing must submit the following documents to the Listing Authority, among others:
- a complete application for authorisation for admissibility to listing in the form set out in the Listing Rules, together with the relevant application fee;
- a prospectus and any supplements;
- one copy of the issuer’s audited annual accounts for each of the past three financial years, prepared on the basis described in the Listing Rules (where the issuer is a newly incorporated special purpose vehicle, the group guarantor must satisfy this condition);
- where the applicant forms part of a group of which the applicant is a member, the consolidated accounts of the group of which the issuer has been a member for the past three financial years prepared in accordance with either generally accepted accounting principles and practice or with equivalent standards;
- the audited annual accounts of any guarantor of the applicant for each of the past three financial years, prepared in accordance with either generally accepted accounting principles and practice or with equivalent standards;
- completed and signed directors’ declarations (as set out in the listing rules);
- a certified copy of the memorandum and articles of association of the applicant, highlighting any proposed amendments as part of the issue;
- appropriate corporate authorities allowing the application for admissibility to listing; and
- if the applicant is a property company or intends to issue debt securities which are secured on property, a valuation report prepared by an independent expert in compliance with the requirements of Listing Rules.
Further, the Listing Authority can require a copy of any other document which it deems useful, necessary or beneficial in order for it to decide on the authorisation of admissibility to listing.
The Listing Rules also cater for several scenarios which are to be excluded from the above filing requirements. For example, non-equity securities are not bound by the above filing requirements if they are issued by:
- a member state or one of a member state’s regional or local authorities;
- public international bodies of which one or more member states are members; or
- the European Central Bank or the central banks of the member states.
In a public offering of debt securities, must the issuer produce a prospectus or similar documentation? What information must it contain?
Yes, the general rule is that a prospectus is required for a public offering of debt securities. However, numerous exemptions from the prospectus requirement are set out in Section 4.7 of the Listing Rules and the EU Prospectus Regulation (2017/1129). The exemptions from publishing a prospectus in connection with the issue of debt securities apply to the issue of (among other things):
- securities fungible with securities already admitted to trading on the same regulated market representing, over 12 months, less than 20% of the number of securities already admitted to trading on the same regulated market;
- securities already admitted to listing on another regulated market (subject to satisfying several conditions).
According to the Listing Rules published by the Malta Financial Services Authority (MFSA), the prospectus must contain all information which – according to the particular nature of the issuer and of the securities being considered for admissibility to listing – is necessary to enable investors and their investment advisers to make an informed assessment of the:
- assets and liabilities;
- financial position;
- profits and losses;
- prospects of the issuer and any guarantor; and
- rights attaching to such securities.
Describe the drafting process for the offering document.
The information in the prospectus must be presented in an easily analysable and comprehensible form. Article 4.12 of the Listing Rules provides that a prospectus composed of separate documents must divide the required information into:
- a registration document;
- a securities note; and
- a summary note.
The registration document must contain the information relating to the issuer, its governance structures and its business and operations. The securities note must provide information specific to the terms and conditions of the securities to be issued. The summary note must, in a concise manner and in non-technical language, provide key information in the language in which the prospectus was originally drawn up. The format and content of the summary of the prospectus must provide, in conjunction with the prospectus, appropriate information about the essential elements of the securities concerned in order to aid investors when considering whether to invest in such securities.
Which key documents govern the terms and conditions of the debt securities? Who are the parties to such documents? How can such documents be accessed?
The terms and conditions of the debt securities are governed by the securities note forming part of the prospectus. The parties to the prospectus are the issuer and the guarantor (if applicable) and the bondholders.
The prospectus relating to the issue of debt securities is uploaded on the Malta Business Registry website and is also available on the Malta Stock Exchange (MSE) website. The prospectus and all public documents ancillary thereto are available on the issuer’s website. In order to obtain a hard copy of the prospectus, applicants may also request such a copy from the issuer. The issuer, when receiving such a request, must deliver a copy of the prospectus on a durable medium to any potential investor, free of charge. This is in accordance with Article 21(11) of the EU Prospectus Regulation.
Does offering documentation require approval before publication? In what forms should it be available?
Yes, in accordance with Section 4.35 of the Listing Rules, prospectuses relating to securities being considered for admissibility to listing must not be published unless they are formally approved by the Listing Authority. Approval is obtained by the Securities and Markets Supervision Unit (SMSU) in the MFSA.
Article 21(2) of the EU Prospectus Regulation states that the prospectus, whether a single document or consisting of separate documents, must be available to the public when published in electronic form on the website of:
- the issuer;
- financial intermediaries placing or selling the securities; or
- the regulated market where the admission to trading is sought.
Are public offerings of debt securities subject to review and authorisation? What is the time frame for approval? What are the restrictions imposed, if any, on the issuer and the underwriters during the review process?
Yes, public offerings are subject to review and authorisation by the SMSU, as stated above. The timeframe for approval is typically eight to 12 weeks from the date of submission of the draft prospectus and the accompanying financial due diligence report (which is not made publicly available post-approval).
In accordance with Section 4.55B of the Listing Rules, applicants must refrain from advertising in any manner, whether directly or indirectly, from the date of the notification submitted in terms of Listing Rule 4.1A and until it is in receipt of the final written notice of the approval of the admissibility to listing from the Listing Authority (the ‘black-out’ period on advertising).
Further, during the review process, any advertisement issued for the purpose of announcing the admissibility to listing of securities must contain a statement that a prospectus has been or will be published and the addresses and times at which copies of the prospectus are or will be available to the public.
On what grounds may the regulators refuse to approve a public offering of securities?
The SMSU may refuse to approve an application at its discretion, without the need to provide a reason for refusing to authorise an application.
Section 4.36 of the Listing Rules states that the Listing Authority must not approve a prospectus unless it is satisfied that:
- Malta is the home member state in relation to the issuer of the securities to which it relates; and
- the prospectus has been drawn up in accordance with the Listing Rules.
How do the rules differ for public and private offerings of debt securities? What types of exemptions from registration are available?
There are no material differences to note.
Describe the public offering process for debt securities. How does the private offering process differ?
Section 4.37 of the Listing Rules states that the Listing Authority must:
- notify the European Securities and Markets Authority (ESMA) of the approval of a prospectus and any supplement thereto at the same time as that approval is notified to the applicant; and
- must provide the ESMA with a copy of such prospectus and any supplement thereto.
The Listing Authority must notify the applicant of its decision to approve or refuse a prospectus within 10 working days of the submission of the draft prospectus. However, if the Listing Authority finds on reasonable grounds that the documents submitted to it are incomplete or that supplementary information is needed, the 10-day time limit will apply only from the date on which such information is provided by the applicant.
Following the black-out period, during which applicants must refrain from advertising until they are in receipt of the final written notice of the approval, widespread marketing on all channels is available at the discretion of the issuer. In terms of Section 4.55 of the Listing Rules, advertisements relating to any securities which have been authorised as admissible to listing or which are to be listed or traded on a regulated market must be clearly recognisable as such, easily readable and comprehensible. Advertising content must:
- be accurate, factual and not misleading;
- not contain any unverifiable claims; and
- be consistent with the information contained in the prospectus.
Further, hidden, surreptitious and other indirect forms of advertising which are not strictly compliant with the Listing Rules are prohibited.Closing documents
What are the usual closing documents that the underwriters or the initial purchasers require in public and private offerings of debt securities from the issuer or third parties?
In public and private offerings of debt securities, there is no requirement for law firm opinions, negative assurance letters or certificates of good standing. However, there is the practice of obtaining an auditor’s comfort letter.
Apart from an auditor’s comfort letter, the registration document forming part of the prospectus will typically include a list of documents which must be available for inspection at the registered address of the issuer or online. These documents typically include, among other things:
- the memorandum and articles of the issuer and the guarantor;
- audited financial statements of the issuer;
- audited financial statements of the guarantor, if applicable; and
- a financial analysis summary.
Bond issues are typically not underwritten in Malta.Listing fees
What are the typical fees for listing debt securities on the principal exchanges?
Typical aggregate fees – including professional fees and costs relating to publicity, advertising, printing, listing, registration, sponsor, management, registrar fees, selling commission and other miscellaneous expenses in connection with the bond issue – range from €200,000 to €450,000, depending on the value of the issuance in question.
Key considerationsSpecial debt instruments
How active is the market for special debt instruments, such as equity-linked notes, exchangeable or convertible debt, or other derivative products?
The domestic market is not typically accustomed to the issue of such special debt instruments.
What rules apply to the offering of such special debt securities? Are there any accounting implications that the issuer should be aware of?
The Listing Rules apply.Classification
What determines whether securities are classed as debt or equity? What are the implications for instruments categorised as equity and not debt?
‘Equity securities’ are defined as shares and other transferable securities equivalent to shares in companies, as well as any other type of transferable securities which give the right to acquire any of the aforementioned securities as a consequence of their being converted or the rights conferred by them being exercised, provided that securities of the latter type are issued by the issuer of the underlying shares or by an entity belonging to the group of the said issuer.
The Listing Rules also provide a definition of ‘non-equity securities’, which are securities that are not equity securities.
In the case of equity issues (not debt), reference should be made to Chapter 3 of the Listing Rules, particularly Sections 3.18 to 3.35.Transfer of private debt securities
Are there any transfer restrictions or other limitations imposed on privately offered debt securities? What are the typical contractual arrangements or regulatory safe harbours that allow the investors to transfer privately offered debt securities?
Bonds are typically freely transferable and, once admitted to the official list of the Malta Stock Exchange (MSE), are transferable in accordance with the rules and regulations of the MSE applicable from time to time. Any person becoming entitled to a bond in consequence of the death or bankruptcy of a bondholder may, on such evidence being produced as may from time to time properly be required by the issuer or the Central Securities Depository (CSD) of the MSE, elect either to be registered themselves as the holder of the bond or have some person nominated by them registered as the transferee thereof. If the person becoming so entitled elects to be registered themselves, they must deliver or send to the CSD a notice in writing signed by them stating that they so elects. If they elect to have another person registered, they must testify their election by transferring the bond or procuring the transfer of the bond.
All transfers and transmissions are typically subject to any pledge of the bonds and to any applicable laws and regulations, particularly the Listing Rules and the EU Prospectus Regulation. Further, the cost and expenses of effecting any registration of transfer or transmission will be borne by the person to whom the transfer or transmission has been made.Cross-border issues
Are there special rules applicable to offering of debt securities by foreign issuers in your jurisdiction? Are there special rules for domestic issuers offering debt securities only outside your jurisdiction?
Yes, there are special rules applicable for offering of debt securities by foreign issuers, specifically in Section 4.67 of the Listing Rules. If a prospectus relating to an issuer whose registered office is situated in a country that is not a member state or an EEA state is drawn up in accordance with the law of that country, the Listing Authority will – if Malta is the home member state in relation to the issuer – approve the prospectus if it is satisfied that:
- the prospectus has been drawn up in accordance with the International Organisation of Securities Commissions disclosure standards; and
- the information requirements, including information of a financial nature, are equivalent to the requirements under the EU Prospectus Regulation.
It is uncommon for domestic issuers to offer debt securities in foreign jurisdictions. However, Section 4.62 of the Listing Rules states that where Malta is the home member state and an admission to listing is provided for in one or more member states or EEA states other than Malta, the prospectus approved by the Listing Authority and any supplements thereto will be valid in any number of host member states or EEA states, provided that the European Securities and Markets Authority and the regulatory authority of each host member state or EEA state is notified. Such notification is made by the Listing Authority to the regulatory authority of the host member state or EEA state at the request of the issuer or the person responsible for drawing up the prospectus, within three working days following the receipt of that request or – if the request is submitted together with the draft prospectus – within one working day after the approval of the prospectus, with a certificate of approval and a copy of the prospectus as approved.
Are there any arrangements with other jurisdictions to help foreign issuers access debt capital markets in your jurisdiction?
What is the typical underwriting arrangement for public offerings of debt securities? How do the arrangements for private offerings of debt securities differ?
There are typically no underwriting arrangements for public offerings of debt securities in Malta.
How are underwriters regulated? Is approval required with respect to underwriting arrangements?
Issues in Malta are predominately not underwritten. Terms of engagement of underwriters would be determined by the contractual arrangement concluded between the issuer and the underwriter and such arrangements would ordinarily not be subject to approval.
What are the key transaction execution issues in a public debt offering? How is the transaction settled?
Debt security listing transactions are settled by the CSD within a few working days of the announcement of basis of acceptance of the bonds by the issuer. Listing and commencing of trading in the bonds take effect in the following business days. Bond issue proceeds are released by the placement agent or manager on closing of subscription. In the case of secured bond issues, the securities are admitted to listing and trading and the bond proceeds are released to the issuer on confirmation that the applicable security is duly constituted in favour of the security trustee for the benefit of the bondholders.Holding forms
How are public debt securities typically held and traded after an offering?
Public debt securities are typically issued in fully registered and dematerialised form and are represented in uncertificated form by the appropriate entry in the electronic register maintained on behalf of the issuer at the CSD of the MSE.
In terms of the Listing Rules, where the securities are held in uncertificated form, issuers must ensure that there is equality of treatment between those who elect to hold the securities in certificated form and those who elect to hold them in uncertificated form.Outstanding debt securities
Describe how issuers manage their outstanding debt securities.
Issuers may manage their outstanding debt securities by purchasing bonds in the open market or otherwise at any price. Any purchase by tender may also be made available to all bondholders.
Regulation and liabilityReporting obligations
Are there any reporting obligations that are imposed after offering of debt securities? What information would be included in such reporting?
Yes, issuers must publish and make available to the public an annual report and audited accounts within four months of the end of the financial period to which they relate. The annual report will be lodged with the Listing Authority at the earliest opportunity, but in any event within four months of the end of the financial period to which it relates. Annual financial statements may need to be consolidated. If the issuer is required to prepare consolidated financial statements, these should comprise:
- consolidated accounts prepared according to international accounting standards as adopted by the European Union; and
- annual accounts of the parent company prepared in accordance with the national law of the member state in which the parent company is registered or incorporated.
If an issuer is not required to prepare consolidated accounts, the annual financial statements will be made up of the annual accounts prepared in accordance with the national law of the member state in which the issuer is registered or incorporated. Failure to comply with the obligation to publish an annual report and audited accounts results in a suspension of the trading of bonds.
Further, issuers must publish and make available to the public their unaudited half-yearly report within two months of the end of the period to which it relates.
Such financial reports must remain publicly available for at least 10 years.Liability regime
Describe the liability regime related to debt securities offerings. What transaction participants, in addition to the issuer, are subject to liability? Is the liability analysis different for debt securities compared with securities of other types?
The transaction participants subject to liability arising from debt security offerings are the issuer’s directors who assume direct responsibility for all information contained in the prospectus. Guarantors of debt securities will typically stand as surety jointly and severally with the issuer and irrevocably and unconditionally guarantee the due and punctual performance of all of the obligations undertaken by the issuer of the bonds. Accordingly, guarantors will typically undertake to pay all amounts of principal and interest which may become due and payable by the issuer to the bondholders under the bonds, within a fixed timeframe from the date such amount falls due and remains unpaid by the issuer.Remedies
What types of remedies are available to the investors in debt securities?
In the case of unsecured bonds, the bonds, as and when issued and allotted, will constitute the general, direct, unsecured and unconditional obligations of the issuer and, where guaranteed, will be guaranteed in respect of both the interest due and the principal amount under said bonds by the guarantor jointly and severally. Such unsecured bonds must always rank equally without any priority or preference among themselves and must rank without priority or preference over all of the issuer’s unsecured indebtedness. Third-party security interests may be registered, which will rank in priority to the bonds against the assets of the issuer.Enforcement
What sanctioning powers do the regulators have and on what grounds? What are the typical results of regulatory inquiry or investigation?
Sanctioning powers of the regulators comprise mainly suspension of trading or delisting.
In general, an issuer must give effect to, comply with and ensure the fulfilment of the terms of the prospectus as approved by the Listing Authority. Failure to strictly adhere to these obligations and to the continuing obligations set out in the Listing Rules is considered a serious breach and will result in administrative sanction, including but not limited to the imposition of a penalty, the publication at the issuer’s expense of a public statement relating to the breach, or to both, or to other sanctions allowed by the Listing Rules or by the Financial Markets Act commensurate to the seriousness of such breaches.
In terms of Section 1.14 of the Listing Rules, if the Listing Authority establishes that the Listing Rules have been infringed or has reasonable grounds to suspect that the Listing Rules have been infringed, it may:
- suspend an admission to trading for a maximum of 10 working days (renewable until the relative breach is resolved);
- prohibit or suspend advertisements for a maximum of 10 working days;
- suspend or ask the relevant regulated markets to suspend trading on a regulated market for a maximum of 10 working days;
- prohibit trading on a regulated market; or
- make public the fact that an issuer or any other person subject to the Listing Rules is failing to comply with its obligations.
There may also be cases where listing should be cancelled without suspension intervening. In such cases, the Listing Authority may discontinue the listing of any security, if, among other things, it is satisfied that, owing to special circumstances, normal regular dealings in any security are no longer possible.Tax liability
What are the main tax issues for issuers and bondholders?
Malta taxes on interest. Since interest is payable in respect of a bond – which is the subject of a public issue – unless the issuer is otherwise instructed by a bondholder that is entitled to receive the interest gross of any withholding tax, or if the bondholder does not fall within the definition of a ‘recipient’ in terms of the Income Tax Act, interest will be paid to such person net of a final withholding tax, which is currently at the rate of 15% (10% in the case of certain types of collective investment scheme) of the gross amount of the interest.
On the assumption that the bonds would not fall within the definition of “shares and stocks and such like instrument that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return”, to the extent that the bonds are held as capital assets by the bondholder, no tax on capital gains should be chargeable in respect of a transfer of the bonds.
In terms of the Duty on Documents and Transfers Act, duty is chargeable, among other things, on the transfer or transmission causa mortis of marketable securities. A marketable security is defined in the said legislation as “a holding of share capital in any company and any document representing the same”. Consequently, bonds should not be treated as constituting marketable securities within the meaning of the legislation and, therefore, the transfer or transmission thereof should not be chargeable to duty. Further, even if the bonds constitute financial instruments of a company quoted on a regulated market, redemptions and transfers of the bonds should, in any case, be exempt from Maltese duty.
Update and trendsUpdate and trends
During the first half of 2019, the Listing Authority approved the issuance of bonds of six companies on the regulated main market totalling €138 million. Except for one, all of the issuers were new to the market. Three of the six new issues were classified as complex financial instruments. One of these issues, that of Tum Finance plc, was issued as a ‘puttable’ bond, the first of its kind in Malta. This issue gives bondholders the right to redeem their holding at a price determined by the issuer if the ownership or control of the entity changes.
On the Prospects MTF market, seven bond issues were made in the first half of 2019, raising a total of €31 million.