20/10/22

MALTA: State passport fund moves to prevent dilution of its Lombard Bank shareholding.

As published on maltatoday.com.mt, Thursday 20 October, 2022.

A state agency that manages Malta’s golden passport fund will register a formal complaint with Lombard Bank over a planned share issue that will dilute its 49% stake.

The National Development and Social Fund (NDSF) will be insisting that any action by Lombard Bank that results in a dilution of its shares should be approved by at least 75% of the bank’s shareholders, sister newspaper BusinessToday reports.

It is understood that the NDSF will also be filing a complaint with the relevant authorities.

The fund administers the receipts of Malta’s citizenship-by-investment programme, which it disburses as grants or invests in blue-chip stocks.

The NDSF acquired a 49% equity in the private Lombard Bank in 2018. The investment, valued at just over €51 million, was intended to facilitate the exit of the now-defunct Cyprus Popular Bank. The move was a measure to safeguard the domestic position of Lombard Bank, which is the owner of Malta’s major postal service, Maltapost.

The NDSF’s investment was intended to be a temporary one, however, since then the fund has not divested itself of its shareholding.

Sources quoted by BusinessToday said the previous government administration had agreed the NDSF would not be represented on Lombard Bank’s board of directors, despite its substantial shareholding.

The newspaper reports that the current administration is moving fast to ensure the NDSF is properly represented on Lombard Bank’s board.

The NDSF was caught unprepared by the bank’s announcement that it intends to access the capital markets with a share issue.

That much was confirmed in a letter sent by the NDSF to the bank’s management and board of directors, in which it objected to the new share issue and what this would do to the value of the agency’s – effectively government’s – shareholding.

Over 1,200 shareholders, and investment funds, hold the remaining shares in Lombard Bank, which besides the NDSF, include Virtu Holdings (9.89%), LifeStar Insurance (5.59%) and First Gemini p.l.c. (5.31%).

Lombard, which is run by CEO Joseph Said, has a controlling 71.5% stake in Redbox, the owner of postal operator Maltapost plc.

Shareholders will now be asked on 10 November to approve a proposed share split, and a new share offering to the market.

In the complaint, it will be filing with the bank, NDSF will be requesting that Lombard Bank agrees that its proposal for a new share issue be approved by a minimum of 75% of the shareholders to pass, effectively putting it in a position to block the move.

Lombard Bank has not yet indicated how large a share issue it is planning. Currently it has an allocation of 80 million ordinary shares at 25c each – €20 million – with over 45 million shares issued for a value of €11.3 million.

Investors understand that the share-split would help encourage trading activity, by making these ‘split’ shares accessible to a wider spectrum of investors.

But it is the share issue that is proving quite contentious, since it dilutes existing shareholders’ power unless they invest in the new issue and buy more shares to maintain their current level of shareholding percentage.

When contacted, Lombard Bank CEO Joseph Said, who is also director of the private investment fund First Gemini, refused to issue any comment on the NDSF’s position.

He said that as an entity listed on the Malta Stock Exchange, “Lombard Bank is bound by regulatory obligations, a number of which also relate to disclosure of price sensitive information”.

He said that once the bank considers it necessary to update the market it will do so by way of company announcements.