Malta’s first major bond default may yet be averted after Mediterranean Maritime Hub (MMH) announced last week that refinancing negotiations with a group of investors have “progressed satisfactorily”.

The company, which holds a 65-year lease over the former Marsa Shipbuilding site granted by the Maltese Government in 2016, has been trying to find strategic investors since at least the beginning of 2023, when it signed a letter of intent with Virtu Holdings, the operator of Virtu Ferries, and a subsidiary of Francis Busuttil & Sons, one of Malta’s leading food distributors.

That deal fell through, leading the company to admit in September 2024 that it will require “alternative financing” to redeem a €15 million bond falling due on 14 October 2026, issued through MMH Finance plc, the financing arm of the group.

Subsequent talks with the Government to negotiate a “balanced” termination of the concession were not successful, raising the very real possibility that bondholders would be left in the lurch.

That possibility now seems a bit less likely, with a group of major investors reportedly including business groups involved in shipping, fisheries, construction and logistics, among others, set to step in.

The situation remains unstable, with the company’s latest annual report for the year ended 31st December 2024 still not published. MMH noted that “more time is required for the details of the proposed transactions to be sufficiently documented.”

Therefore, it “deemed it prudent to finalise and document these discussions prior to concluding and approving the financial statements,” now anticipated by 25th August 2025.

The next key date for MMH is October 14th, 2025, when the company is due to distribute €720,000 in interest to its bondholders – a payment it has so far managed to make over the pays since the first interest payment in 2017.

While MMH seems to be confident that the current negotiations will pull it back from the brink of default, the market is less confident, with its bonds still trading at a near-record low of €91.50.

As bondholders remain on the alert for further developments, they may also ask themselves: How did we get here?

The red flags

MMH ran into problems immediately, writing in its annual report for 2016 – the same year it was awarded the concession – that it faced multiple delays due to “issues encountered in the course of [the site’s] transfer to the group,” as well as with the commencement of infrastructural works.

In the same report, the company admitted that it was pursuing efforts to market the hub internationally due to the limitations of the oil and gas industry at the time. Meanwhile, the “significant costs incurred in the development of the hub”, including an increase in its management costs, led the company to post a loss before tax of €634,000.

By 2017, despite rising oil prices, the oil and gas industry remained relatively stagnant, forcing MMH to explore different revenue streams. To that end, the company appointed a new business development team, with the effort envisaged to bear fruit by the following year. It nonetheless managed to post a minimal profit before tax of €104,591 despite noting that 2017 was “a difficult year amidst a challenging environment.”

In 2018, the group encountered more financial difficulties, registering a loss of €936,000. Depreciation and finance costs started to bite, while revenue fell short of projections by €2.8 million, with the downturn attributed to the overall conditions within the oil and gas market.

The difficulties experienced in bringing in the oil and gas business led MMH to start offering maintenance and upkeep services to yachts, investing in travel lifts to expand its services.

The company also started offering offices and workshops on site for rent, for which it received robust demand, prompting it to declare that it would build more facilities of this nature.

MMH once again returned to profitability in 2019 with a profit before tax of €568,000, citing its vessel-hoisting facilities vessel maintenance as “new lines of revenue [that] have exceeded expected income and show persistent growth throughout.”

Although the COVID-19 pandemic posed a risk to its activities, the company still turned a profit of €676,000 in 2020.

However, this would prove to be the last year that the company stayed in the black, posting losses of €1.76 million in 2021, €1.65 million in 2022, and €205,000 in 2023.

Growing debts

Over the years, MMH’s liabilities grew significantly. In 2016, its assets-to-liabilities ratio stood at 80.5 per cent, with €22.9 million in assets and €18.5 million in liabilities.

By 2018, that ratio stood at 88.9 per cent, and by 2023, 95.2 per cent.

By any measure or standard, the group is over-leveraged to the hilt.

In the annual report for 2023, the company’s directors said they “recognise that taking cognisance of the equity position of the group there remains significant uncertainty.”

The bottom line

MMH says it has invested €41 million into the facilities, but the site remains “a project-in-the-making” that “is not yet fully utilised for revenue generation.”

Indeed, the facilities have even been used as an event venue in recent years, drawing the ire of competitors.

Meanwhile, the company’s actual financial performance consistently fell short of its own income projections.

While the risk of default drew a lot of attention to the company’s performance, the writing has long been on the wall. The warning signs were clear as from the financial statements published in the Prospectus dated 16 September 2016, but many chose to overlook them.

Additional reporting by Adel Montanaro