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NEW BOND ISSUE 5% €25,000,000 Tumas Investments p.l.c. Bonds due 2024 Issuer Tumas Investments p.l.c. Guarantor Spinola Development Company Limited (SDC) Issue Price €100 Coupon 5% Currency € Euro 1 Interest due date Semi-annually on January 31 and July 31 Redemption Date July 31, 2024 Issue Size €25,000,000 Min. Application €2,000, with multiples of €100 thereafter 2 3 Bond Status Unconditional, unsecured and unsubordinated Opening Date Preferred Applicants – July 10, 2014 Closing Date July 22, 2014 Intermediaries’ Offer July 28, 2014 Withholding Tax Applicable at 15 % (unless investor elects to receive interest gross) Stockbroking Fees None (as is the case with all new issues) Issuer & Guarantor – An Overview The Issuer, as well as the Guarantor, are fully-owned subsidiary companies of Tumas Group Company Limited. Tumas Investments p.l.c. was incorporated on the November 17, 2000 as a public limited company, and was set up and established specifically to act as a finance company. SDC, which was incorporated on May 10, 1966 and was acquired by the Tumas Group in 1986, is a limited liability company incorporated and registered in Malta. Its immediate holding company is Spinola Investments Limited (C8034). The business of SDC has to date principally comprised the continuous development, management and operation of the Portomaso complex. SDC is the owner of the site on which the Portomaso complex is built. SDC effectively owns 100% of the share capital of Portomaso Leasing Company Limited (C-33110), Halland Developments Company Limited (C-46810) and, as of March 2011, 99% of Premium Real Estates Investments Limited (C-52247). In July 2009 the Company issued to the public in Malta €25,000,000 6.25% bonds due 2014 - 2016 having a nominal value of €100 each and issued at par. The said issue of bonds was regulated by the prospectus dated June 10, 2009 and in virtue thereof the bonds in question are guaranteed by SDC and the issuing Company retained the option, exercisable at its discretion, to redeem the bonds prior to July 31, 2016. The company has opted to exercise its right to redeem the aforementioned bond prior to the final date of maturity, and is doing so in terms of the prospectus dated June 10, 2009. Introduction and Purpose of Issue The estimated net proceeds from the issue are expected to amount to €24.5m, and will be used by the issuer to redeem the outstanding amount of the Maturing Bonds which, as at the date of the Prospectus, amounted to €25,000,000. Any shortfall will be met by the Issuer through alternative funding sources, including funds making up the bond redemption fund built up in connection with the Maturing Bonds in accordance with Section 5.8 of the securities note forming part of the prospectus dated June 10, 2009 issued by the Issuer, which as at December 31, 2013 amounted to €4,000,000. 1 Interest is expected to accrue on the Bonds as from July 31, 2014 at the rate of 5% per annum on the nominal value thereof, payable semi-annually in arrears on each Interest Payment Date – with the first interest payment being made on January 30, 2015 2 The Bonds constitute the general, direct, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu, without any priority or preference among themselves and with other unsecured debt, if any; 3 The Bonds will, however, rank subordinate to the present and future secured creditors of the Issuer and the Guarantor. Both the Issuer and the Guarantor have certain liabilities which are secured by hypothecary warranties over assets pertaining to the two entities. An overview of the trends expected in the key areas of operation of the Guarantor (SDC) in the foreseeable future follows The Issuer has been set up to act as a financing company and its business is limited to the raising of capital for the financing of capital projects and the loaning of such capital to SDC, the collection of interest from SDC and the settlement, in turn, of interest payable on capital raised from third parties. The Issuer does not have any substantial assets. Its role is limited to the financing of the Guarantor’s operations and it is, accordingly, fully dependent on the cash flows of the Guarantor. The principal business of SDC is the operation of the Portomaso complex, which comprises of sheltered excavated marina that extends the natural waterfront of the site and serves to enhance the environment of all the constituent components. These comprise the Hilton Malta hotel (including the convention centre), residential apartments, the business tower, commercial areas, catering outlets, extensive underground car parking facilities and the marina itself. The Hilton Malta hotel remains the largest single component of Portomaso’s operations. The incoming travel industry is currently performing at a strong level and is projected to continue to do so in the foreseeable future. The hotel also enjoys significant business traveller patronage, and this is expected to continue to increase in line with Malta’s success as an international business centre, which remains a focal point for Malta’s future development. Rental operations are expected to yield a steady income stream moving ahead, in line with contracted inflationary increments. The complex is fully rented and demand for office space remains strong in what remains a primary premium office location. Portomaso remains a holistic development of complementary activities that make it an attractive location for tenants. SDC draws comfort from the quality of the counterparties whom the project is housing. Apart from the Laguna extension (an extension of the Portomaso complex that will include 44 apartments and in respect of which SDC has commenced excavation works), the main activity of the property division in the coming years will be that of disposing of the remaining stock of 23 apartments, of which 6 are already the subject of promise of sale agreements. The Laguna extension will complete the overall project at the high level tone that is expected of Portomaso. The extension will, however, have a very limited impact on SDC’s business expectations in the period 2014 to 2015, during which it is expected to incur net cash outflows, on construction costs, that will be financed through separate borrowings sanctioned for the purpose. Guarantor Financial Anaylsis 4 Consolidated Income Statement for the years ended 31 December Spinola Development Company Ltd. Revenue EBITDA Net Finance Costs Profit before tax Profit after tax Consolidated Balance Sheet as at 31 December Spinola Development Company Ltd. 6 Total Assets Total Equity Total Liabilities 4 5 6 5 2015 2014 2013 2012 2011 Forecast Forecast Actual Actual Actual (€‘000) (€‘000) (€‘000) (€‘000) (€‘000) 40,008 11,887 (3,857) 2,085 2,651 39,939 12,544 (3,824) 3,163 1,938 38,323 11,696 (4,185) 2,169 1,309 44,414 13,551 (4,212) 4,234 2,660 42,903 11,715 (4,065) 2,742 1,677 2015 Forecast 2014 Forecast 2013 Actual 2012 Actual 2011 Actual (€‘000) (€‘000) (€‘000) (€‘000) (€‘000) 145,142 48,585 96,557 141,313 48,122 93,191 141,306 48,367 92,939 146,923 49,281 97,642 132,705 37,736 94,969 A more detailed analysis on the company’s financials is provided in the prospectus dated July 7, 2014 The balance of bank O/D which in the annual financial statements of the Guarantor is recognised as current borrowings, is being netted with available cash A recent valuation of all the property of SDC (with the exception of the Halland site and the land to be developed for the Laguna Project) that was prepared in connection with this bond issue valued the property to be worth €143,000,000, opposed to a book value of €97,300,000 Key Ratios Interest Cover (times) (EBITDA/Finance Costs) Gearing Ratio (%) 2015 2014 2013 2012 2011 3.08 3.28 2.79 3.22 2.88 56.5 53.6 51.3 50.8 59.3 5.33 3.98 2.71 5.4 4.44 1.45 2.27 1.52 2.87 2.06 7 (Net Borrowings/(Total Equity + Net Borrowings)) Return on Equity (%) (Net Profit/Total Equity) Return on Assets (%) (Profit before Tax/Total Assets) Investment Risk Considerations All debt instruments such as bonds are potentially exposed to credit and interest rate risk. Debt securities may be subject to the risk of the issuer’s inability to repay capital originally invested and/or interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, adverse exchange rate movements, market perception of the creditworthiness of the Issuer, general market liquidity, and other economic factors. All of which could have either a direct or an indirect impact on the tourism and leisure industry – of which the company’s core operations form part of. When interest rates rise, the value of corporate debt securities can be expected to decline. Fixed rate transferrable debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities. 8 A number of other related risks - a list that is not exhaustive – include the following: i. ii. iii. iv. v. vi. This Securities Note contains forward-looking statements. Such forecasts and projections do not bind the Issuer or the Guarantor with respect to future results and no assurance can be given that future results or expectations covered by such forward-looking statements will be achieved. These statements by their nature involve substantial risks and uncertainties, a few of which are beyond the Issuer’s and Guarantor’s control. Potential investors in the Bonds must determine the suitability of the investment in the light of their own circumstances. Application has been made to the Listing Authority for the admissibility of the Bonds to listing and to the Malta Stock Exchange for the Bonds to be listed and traded on its Official List. There can be no assurance, however, that an active secondary market for the Bonds will develop or, if it develops, that it will continue, nor can there be any assurance that an investor will be able to re-sell his Bonds at or above the Bond Issue Price, or at all. No assurance can be given as to the impact of any possible judicial decision or change in law or administrative practice after the date of the Prospectus. Investment in the Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds. The Issuer may incur further borrowings or indebtedness and may create or permit to subsist other security interests upon the whole or any part of its present or future undertakings, assets or revenues (including uncalled capital). Guarantee The Bonds shall constitute the general, direct, unconditional and unsecured obligations of the Issuer and shall be guaranteed in respect of both the principal amount and the interest due under said Bonds by the Guarantor. This means that bondholders will rank pari passu (equally) with the other unsecured creditors of the Issuer. In addition, the Bonds are being guaranteed by the Guarantor and, therefore, bondholders are entitled to request the guarantor to pay both the principal amount and the interest due under said Bonds if the Issuer fails to meet any amount. The Guarantee also entitles the bondholders to take action against the Guarantor without having to first take action against the Issuer. The strength of the Guarantee is directly linked to the financial position and solvency of the Guarantor. 7 Gearing ratio is expected to increase over the coming 2 years which will be fully funded by banking facilities. The expected cost of the refurbishment is €9,000,000 and is fully funded by banking facilities with €2,000,000 expected to be drawn during 2014 and €7,000,000 throughout 2015. 8 Refer to the relevant Prospectus for further information Application procedure & Allocation Applicants are to complete application forms provided to them by the issuer and return to us as early as possible. Cheques are to be made payable to “The Registrar – Tumas Investments p.l.c. Bond Issue”. Interested clients should refer to the Prospectus dated July 7, 2014 which may be obtained from our office in hard copy or electronically by e-mail on request. The Issuer shall allocate the Bonds on the basis of the following policy and order of priority: i. ii. iii. First to Preferred Applicants (Application Form A) up to the extent of their holdings of Maturing Bonds on the Cut-off Date rounded upwards to the nearest €100 and subject to a minimum application of €2,000; The balance of the Bonds not subscribed for by holders of Maturing Bonds on the Cut-off Date limitedly by means of a Maturing Bond Transfer shall be made available for subscription to Preferred Applicants in respect of any additional Bonds applied for other than by Maturing Bond Transfer and to holders of 2017 2020 Issuer Bonds (Application Form B) on the Cut-off Date; In the event that following the allocations made pursuant to paragraphs (i) and (ii) above there shall still remain unallocated Bonds, the Issuer shall offer such remaining Bonds to Authorised Intermediaries through an Intermediaries’ Offer, which will be taking following the closing of the issuance period and July 28, unless otherwise stated. No preference shall arise with respect to the excess Bonds applied for but such excess Bonds shall, together with applications by holders of 2017 – 2020 Issuer Bonds on the Cut-off Date, be subject to such allocation policy as shall be determined by the Issuer. Holders of Maturing Bonds on the Cut-off Date who do not elect to avail themselves of the possibility to exchange their investment in terms of the procedure outlined herein shall receive all capital and accrued interest to date on the July 31, 2014. You may contact us by phone on freephone number 8007 2206 or speak to our Investment Advisors at one of our branches in Valletta, Birkirkara, St. Paul’s Bay or Ta’ Xbiex. We will be pleased to answer any queries you may have on this issue and assist in the completion of all the necessary forms. The information contained in this document is believed to be correct, but cannot be guaranteed. Any opinions expressed herein are given in good faith at this date and may be subject to change without notice. This information is not intended to constitute an offer or agreement to buy or sell investments. The investments referred to in this document may not be suitable or appropriate for every investor. No liability is accepted whatsoever for any loss howsoever arising from any information in this document. The value of investments can go down as well as up. Investors may get back less than their initial investment and past performance is no guarantee of future performance. Jesmond Mizzi Financial Advisors Limited is licensed to conduct the business of investment services by the Malta Financial Services Authority, Notabile Road, Attard BKR3000, Malta, and is a member firm of the Malta Stock Exchange, Garrison Chapel, Castile Place, Valletta VLT1063, Malta. Jesmond Mizzi Financial Advisors Limited or a connected company, their clients, officers and employees may have a position or engage in transactions in any of the investments mentioned.