The feasibility of bond financing as an alternative to finance from credit institutions in Malta

Abstract

The study analyses bond financing, through the listing of bonds on the regular market of the Malta Stock Exchange, as a direct alternative to finance from credit institutions in the context of the Maltese economy. It establishes whether such financing is financially feasible for the issuer and which corporate entities are more inclined to incorporate this option in their finance strategy. It also explores the reasons for the recent increase in bond issues and provides relevant conclusions and recommendations. The objectives of this study were achieved through: the analysis of existing research on the matter; two case studies based on real-life scenarios to gauge the financial feasibility of bond financing against bank loans; and the binary logistic regression of data gathered from publications of annual reports and prospectuses of public interest entities, as requested by the Listing Rules, in order to ascertain which type of companies are likely to issue bonds to the public successfully. Qualitative research through interviews with senior and experienced industry professionals provided corroboration of the findings as well as further insight on the effect of bond issues on the industry and the Maltese economy. The study concludes that bond issues on the regular market of the MSE are indeed a feasible alternative to bank loans, albeit only viable for a stratum of companies that are relatively large and present high-value projects or activities. Furthermore, it concludes that the latter companies are more likely to issue bonds when owned privately, rather than by the general public, as they do not have the option to issue shares in order to finance activities. In addition, qualitative research suggests that the increase in financing options for companies in Malta aids growth and promotes investment. The study provides prospective issuers with a thorough analysis of bond financing in Malta as well as a basis for further research to be undertaken from the perspective of other stakeholders such as the regulator, retail investors and credit institutions.