Corporate bonds driving record growth in Malta’s capital markets

The local corporate bond market has grown exponentially over the past few years driven mainly by more knowledgeable investors, who are more confident to invest. According to NICK CALAMATTA, co-CEO at Calamatta Cuschieri Moneybase, “this new breed of investors is being encouraged by more attractive investment propositions, positive economic performance and a good overall sentiment”

Capital markets have always had an important role in supporting Malta’s economic progress and their potential to help the country pursue substantial investments necessary for sustained growth cannot be denied.

Calamatta Cuschieri strategically entered the capital markets sector in 2013, immediately setting itself apart with a dedicated team of professionals supported by market knowledge from its wealth management team and over the past decade, it has participated in 70 bond issues.

“Looking at economic growth in the past years, there’s an evident correlation with the role of capital markets,” explains Nick Calamatta.

At last year’s annual Capital Markets seminar, hosted by Calamatta Cuschieri Moneybase, Calamatta highlighted the untapped potential for more productive investment, noting that households hold over €20bn in dormant bank deposits. He emphasised the opportunity to stimulate the secondary market as a means to drive further economic growth.

Calamatta pointed out that although the government announced plans in 2024 to address its budget shortfall through the issuance of four bond issues, only three were ultimately carried out over the years.

“Historically these issues were dominated by retail investors, this year saw a significant shift, as tighter premiums deterred retail participation, with institutional investors filling the gap. While large issues can impact demand for other instruments, sufficient capital entered the market to meet issuance needs.”

“In my opinion maintaining a strong retail investor base is crucial for the government, even if this might mean paying a slight premium and having higher borrowing cost. The reason for this being that retail investors are long-term holders, reducing speculation and volatility in the sovereign bonds. Prioritising this investor base ensures stability in the bond market,” he added.

During 2024, CC led the charge in corporate bond issuances, facilitating €303m worth of bonds across various sectors.

What trends were observed in the types of companies issuing bonds and were there any particular sectors that showed more demand or growth? “2024 saw Malta’s largest financial institution, Bank of Valletta issuing €100m worth of bonds, and we expect more banks to follow suit as they grow and need further equity or subordinated debt to fund their capital structure. Property-backed bonds continued to dominate the landscape, despite concerns about their large share of the market.”

“Some critics worry about the concentration of financial markets in property, but I do not see this as a major issue. Despite efforts to diversify bond issuances across various sectors, Malta’s property sector remains a robust one which is expected to remain the most important asset class.”

And while local corporate bonds have always been popular among investors, recent years have shown how economic growth led to more issuance from different companies which caused a proportionate growth in investor base.

“Over the last 10 years, the local population became more affluent, and deposits skyrocketed. I also notice how investor knowledge has improved drastically and today investors are savvier and more informed when choosing their investment options,” noted Calamatta.

As companies increasingly seek alternatives to traditional bank financing, corporate bonds have emerged as a pivotal tool in building more sophisticated capital structures.

“Whereas businesses used to rely solely on term loans or overdrafts, today they have access to diverse instruments such as bonds, callable bonds, revolving credit facilities and tailored loans, an evolution that reflects the growing need for flexible financing solutions driven by local growth, internationalisation and sector consolidation.”

“Expanding these options is vital for the financial sector to empower local companies to compete globally,” he added.

Looking ahead, Calamatta foresees 2025 as possibly being another record year for corporate bond issuance with several corporates already lined up.

“More local corporates are complementing bank financing with longer-term debt, and it is evident that companies are confident enough in taking on new long-term projects. And while the majority of bonds have an element of property or hospitality financing, we are expecting issuance from more diverse sectors such as aeronautical, commodities and gaming during the year.”

“Challenges are inevitable in capital markets. Geopolitical conflicts can affect stability and investor confidence while fluctuating interest rates and inflationary pressures add unpredictability. Regulation remains a sensitive yet vital topic, requiring a balanced approach to EU directives. As a smaller EU jurisdiction, it’s crucial to lobby and provide input to avoid the disadvantages of a one-size-fits-all regulatory framework that may not suit smaller economies.”

To those companies considering issuing bonds for the first time, Calamatta offers some important tips.

“A bond issue is never an easy way to raise capital. Only those companies with the right governance structures in place and the willingness to invest should consider such an important step. Obviously, these need to be supported by the right team of advisors to help them ensure the most appropriate solutions for their financing needs.”

That said, corporates considering a first foray into capital markets can expect a process that has improved greatly over the last few decades.

Today in Malta over 100 corporates have outstanding bonds, which is a testament to the effectiveness of local capital markets in gaining access to long-term financing.