Debono bond issue will refinance bank debts not finance St George’s Bay project

Contrary to what was originally planned and spoken about, Silvio Debono’s company will not be issuing bonds to finance the St George’s Bay project, but will be issuing them instead to refinance its significant outstanding loans with the banks.

An informed source close to Debono’s office told this website: “Debono wants to clean up his balance sheet, have just the bond plus bank overdrafts as outstanding debts, and then obtain fresh finance for the project itself, through the banks and other sources like deposits on flats.

“This is a big departure from the initial plans, which were to have the bonds finance the project itself. The final prospectus and use of funds will now be for refinancing of existing debts.

“Whoever subscribes to these bonds will just be taking over the banks’ risks and Debono’s current business risk. The project itself is an unknown so far, but will be financed by a special purpose vehicle which has yet to be set up – that means another company which will hold the loans and other debts.”

Silvio Debono’s company has been issuing statements to the press claiming that it will “invest €300 million” in the St George’s Bay speculative project on public land acquired from the current government for €15 million in interest-free payments staggered over seven years.

But this same source said: “They will not be spending anywhere near €300 million themselves. What they have done there is make a rough calculation of how much money will have been spent, even by third parties, by the time the development is finished.

“It also includes things like money spent on painting and plastering by the people who buy the flats in shell form. So if you buy one of their flats and then spend €100,000 finishing it, that’s part of the €300 million figure they are quoting.

“The €300 million includes around €220 million which will be spent by third parties. Debono’s company will be investing no more than around €80 million, and that money will be borrowed from the banks and taken as deposits from people who buy flats on plan.”

Silvio Debono and his CEO Arthur Gauci are pressing for a coupon rate (the interest paid on the bond) just above 4%. One financial adviser contacted by this website said: “I think it’s too low, but then the Maltese snatch up anything, but if brokers don’t commit enough client funds, they have to up the rate. Right now, they are talking about what a lot of interest they have, and how a higher coupon rate will not be necessary.”

Prime Minister Joseph Muscat cutting a celebratory cake with Silvio Debono, his wife Veronica, and their four children.