Today’s column has nothing against the Fort Cambridge project and its developers: today’s column is against the system of how two weights and two measures are adopted in this country.
A colleague of mine could not understand how the prospectus of the LM15 million bond issue was approved by the Malta Financial Services Authority on a simple outline (not full) Mepa development permit. It is true that the risks were highlighted in the prospectus; but the MFSA is still adamant about not classifying the risk factor of any bonds issue in Malta.
Overseas, many serious financial authorities classify the risk factor of any bonds issue: the type A or AAA classification, which sets the mind of the investors at rest that they will get a return for their investments. In Malta, for some unknown reason, the MFSA does not insist with the government so that such classification is made mandatory in any bonds issue. While gazing at the prospectus of the Fort Cambridge bonds issue, the investors are informed that they will rank after the Senior Loan – that is, after the banks – and that the sub-contractors in the project, whose fees are privileged, have only postponed their right to register a special privilege for any amounts due to them in respect of the Fort Cambridge Area development up to the sum of LM31 million in favour of the banks and the bondholders.
This means that the bondholders have to check how much of that LM31 million has been loaned by the banks… because if all of the LM31 million are bank loans, this means that the sub-contractors will rank after the banks and before the bondholders. In other words, the bondholders will get the worst deal by being the last on the list of creditors.
I am sure that the MFSA will say that any investor has to seek advice from his stockbroker and that there is no need to classify any bonds issue. But the more bonds the stockbroker sells, the more commission he gets, and if the bondholder has no inkling of the risks involved, he cannot be in a position to ask any questions to anybody. It is not fair for MFSA to argue that advice is sought from stockbrokers, because advice is given on the questions asked and the man in the street is still very naïve on the issue of bonds, and on any investment in all that matters.
Another point concerns the MEPA permits mentioned in the prospectus of the bonds issue. The bonds were approved by MFSA on a simple outline development permit issued by MEPA. This means two things: either that MFSA does not know the definition of an outline development permit or that the developer is so convinced that the MEPA permits will be issued that MFSA sought no risk factor in this sense. To be fair the prospectus refers to the risk of delays in obtaining the necessary planning permissions; but it also says that the developer considers that this risk is mitigated on account of the issuance by MEPA on 8 March 2007 of an outline development permit. However, I cannot understand how MFSA approved the following wording in the prospectus, i.e.:
“Although this permit does not actually allow any construction works to start on the Tender Freehold Property, it vests the Issuer with the same rights, in terms of development potential of the site, as a full development permit. Indeed there is no distinction under the Development Planning Act (Cap 356 Laws of Malta) between an ‘outline’ and a ‘full development’ permit: neither type of permit can be revoked (other than on exceptional grounds such as in the case of fraud or public safety).”
Moreover, the developer assured the investors in the prospectus that “an appeal from the issuance of a full development permit does not in itself prevent development works from commencing pending the determination of such an appeal”, meaning that no appeal will turn the clock back. It is a pity that the prospectus did not also mention that there is also the right of appeal on the decision of the Appeals Board to the Court of Appeal on a point of law, pity that MFSA did not deem that this should also be included in the prospectus for the investors to take note.
I am however amazed by the fast track adopted by MEPA in this case. The prospectus gives the usual time limits imposed by MEPA for the issue of development permits, and I must say that MEPA has so far been very faithful to these time limits.
PA 4144/06, an outline development permission relating to the demolition of the former Holiday Inn Hotel, the restoration of Cambridge Battery, six apartment blocks containing 386 flats, four levels of underground parking, private services amenities for residents, change of use from barracks to offices, was submitted on 28 June 2006 and approved on 8 March 2007, barely eight and a half months later. The full development permission for the demolition of the Holiday Inn and excavation of site (PA 6952/06) was submitted on 6 November 2006 and approved on 8t March 2007 (on the same day as the outline development permission, when the developers had no inkling that the outline would be approved but they submitted the full application just the same).
Meanwhile, PA 2752/07, for a full development permission to erect residential apartment blocks overlying four levels of underground car parking and leisure/amenity facility (341 apartments) was submitted on 23 April 2007 and is still pending.
This means that when the bond issue was approved by MFSA the developer only had a valid permit to demolish the existing hotel and do the excavation of the site. And that is the situation to date. There is no MEPA permit for the development so far. However, the developers promised the bondholders that the permit would be issued in September 2007.
Now in the light of the complaints submitted to the EU Commission relating to the decision taken by MEPA to waive the need for an Environment Impact Assessment, it will be interesting to note if the deadline promised to the bondholders for the issue of the full permit will be respected. It is still a mystery as to what will the situation be: whether MEPA will issue the permit at an even faster pace; whether the EU Commission will decide in favour of MEPA, or in favour of the lobbyists; and what will happen if the EU opts for the latter. Will the project be still viable? Will the bondholders have their investment at risk and if so, at what risk?
Another point is that the developer still does not own the land, because the “konvenju” (promise of sale agreement) with the government was made on 29 December 2006 (Christmas festivities) and the prospectus does not mention that the final contract has been signed.
This means that the bondholders have invested in property which still does not belong to the developer, and which is still subject to a MEPA permit, and which is now also subject to the decision of the EU Commission.
How MFSA did not go through these issues and relied blindly on the wording of the prospectus is something that many of us consumers fail to understand. That is why I continue to assert that classification of bonds and investments is paramount if we have the interests of the consumer at heart.
Consumer lobby groups ought to put pressure on MFSA so that any prospectus on any investment is classified according to the risk factors involved.
