When Melite Finance’s directors approved a plan to buy the group’s outstanding bonds and cancel them, as part of a plan that saw its majority shareholder extend a €9.25 million loan to the struggling company, market observers could likely not help but think back to a very public spat between shareholders and bondholders that played out in 2021.

“Appeasement in 2021 would have led to further unacceptable demands from Melite,” says stockbroker and financial advisor Paul Bonello.

Mr Bonello had led the charge against a plan floated by the company amidst the turmoil of the COVID-19 pandemic, when its physical retail model took a bad hit amidst strict lockdowns in Northern Italy, where it has the majority of its operations.

Under the terms of that controversial plan, bondholders would have had the coupon rate on their bonds reduced to zero for 2021, 2.5 per cent for 2022, and three per cent for 2023, to buy the company time to get back on its feet.

Paul Bonello, by Tyler Calleja Jackson

At the time, Mr Bonello was vociferous in his condemnation of the plan, saying that it would "cause bondholders' trust in the market to plunge." He compared the company’s negative results and subsequent stance to those of many others on the Malta Stock Exchange that were affected negatively by the pandemic, “none of which, however, considered not paying their interest obligations.”

The plan would have upended the norms of Western capital markets, whereby shareholders are the main bearers of risk and secured creditors - as were Melite bondholders - the least. 

The idea was eventually abandoned at the last minute, with the shareholders making a capital injection to save the company – for a time.

Before delving into the consequences of that “sorry saga” taking place against the backdrop of a world-changing pandemic, it bears explaining the what, why, and who of the main player.

Who is Melite Retail Group?

Melite Retail Group is a joint venture between prominent Maltese business families that hold long-term leases of commercial properties in Italy (under Melite Properties Srl) and sub-lets them to commercial enterprises.

Unfortunately, the last few years have not been kind to the business model, with successive tenants closing shop, leaving Melite with expensive leases to pay. Indeed, the Italian Government's response during the COVID pandemic, where it required non-essential businesses to close shop in line with many Western country's pandemic response measures, meant retail tenants struggled to keep up with payments. 

Many of these tenants were previously rented to Melite Retail Ltd, owned by the same shareholders. However, this company closed down during the pandemic.

The turbulence led the company to terminate a number of leases during 2020 and 2021, with the remaining 19 eventually being sub-let to third parties, initially at discount rates, and eventually at pre-COVID prices.

However, the company was not out of the woods yet. Giadea Srl, the new tenant of 11 of the 19 stores, exited the one in Treviso in July 2023 (with the lease eventually being cancelled by Melite Properties in November 2023 against an exit fee, after it failed find another tenant.

Giadea Srl then failed to pay rent for January 2024 on the other 10 stores it occupied – while refusing to vacate the premises.

In June 2024, Melite announced that Giadea had been placed in judicial liquidation in March. It also revealed that it had reached a deal with Giadea and Accessorize Brands Ltd (ABL) whereby the latter company would take over the sub-lease of seven stores.

Another two leases for stores in the Milano Garibaldi and Padova train stations, were terminated, with the landlord paying Melite an early termination fee. An ABL subsidiary took over the leases directly, cutting out the Maltese middleman.

This left Melite with a single untenanted property, in Turin, as of June.

As a result of the rather spectacular instability in Melite’s business, the company felt the need to turn to its shareholders for support.

Asked a series of questions in relation to the 2021 bond coupon rate proposed haircut, and on this year's decision to pay bondholders in full, a company spokesperson said: 

"As you may be aware, the company’s bonds were acquired by the company in full and subsequently discontinued from listing on the Official List of the Malta Stock Exchange with effect from 22nd August 2024, this despite the widely publicised difficulties faced by the company and its Italian subsidiary, Melite Properties Srl, as a result of the negative impact of the COVID-19 pandemic on the Italian retail sector.

"As set out by the company in its previous company announcements, such buy-back was financed through a loan granted to the company by one of its shareholders, Alf Mizzi & Sons Ltd (C 203). Following the delisting of the company’s securities, all further comments from the Company are now subject to commercial confidentiality and the Company has no further comment to make to the public."

Who owns Melite Retail Group?

The largest single shareholder, with a 40.3 per cent stake, is Alf Mizzi & Sons Ltd, one of Malta’s largest companies with varied business interests.

Andrew Ganado Ltd and GAN Ltd (owned by Christian Ganado), respectively hold 21.65 per cent and 9.11 per cent of Melite’s issued share capital.

MMGH Ltd (Marina Milling), which is owned by numerous individuals and holding companies, holds 9.7 per cent

Daystar Holdings Limited, of the Soler family, hold another 7.43 per cent of the issued share capital.

What happens now?

A deal reached between the company’s shareholders back in April, covered here, resulted in a €9.25 million loan being extended by Alf Mizzi & Sons, with guarantees from other shareholders, to Melite Retail.

The loan was used to buy back all the outstanding bonds from the investing public. The buy back was conducted at par (€100), even though the bonds had been trading below par since mid-2020, with the price in April sitting at €85.

That meant that bondholders, who were monitoring the situation closely due to the risk of losing their investment, were able to get all their money back.

“If bondholders had not put their foot down and clearly showed that messing with the interest rate was not acceptable, the entire repayment of bonds at par that occurred now would not have materialised,” says Mr Bonello, while pointing out that the company still failed to pay the last year's interest from November 2023 and August 2024 under the terms of the bond buy-back, "still leaving a sour taste even at this late stage of this saga."

He notes that this "technically constitutes the first default of interest that has occurred on a security listed on the Malta Stock Exchange" - a situation that does nothing to dispel his conviction that “appeasement in 2021 would inevitably have led to further unacceptable demands from issuer.”

The stockbroker concludes: “Only because the issuer had emerged with a bloodied nose did they do the right thing now, that of putting in further capital and repaying the bonds. This is a victory for investor activism."