24 May 2006

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Business Today

Becoming a blue chip company

It’s been three years since the last bond issue by a listed company and there was little doubt as to who would be taking the first step to stir up frenzy in the market.
The ever-changing and expanding Global Group, now under the newly re-branded image, GlobalCapital, did it again. A EUR10 million bond issue was oversubscribed within hours to the extent that the company also availed itself of the EUR7 million over allotment option.
It’s a sign of people’s trust in the company, Group Chairman CHRISTOPHER PACE says. Visibly proud that the company continues to break new ground, Pace insists the secret of GlobalCapital’s success is its efficient way of embracing change and adapting quickly.
“We do have the necessary structures to analyse decisions and manage risk but we do it fast, within a few days,” he says. Government must be envious of this streamlined bureaucracy that gets things done in days as opposed to months.
But GlobalCapital’s future is blue. Pace sees the company transforming itself into a leader on the stock exchange by becoming a blue chip company alongside the more established ex-government companies.

GlobalCapital’s bond issue last week was the first financial instrument of sorts on the market for a number of years. What does the satisfactory take-up say about your company and investors out there?
It is a big vote of confidence in the company. The public really believes that GlobalCapital has a future and they are willing to help us build that future through their participation in this bond issue.
But our expertise in financial services and the understanding of the markets showed us that clients are predominantly looking for a fixed income and a guaranteed return of the capital invested. The bond was structured to also meet these demands.
After a lapse of around three years with no company going to market with a bond issue, there was a big gap in the market, which we satisfied.
The fact that we priced it in Euro, which is going to be the currency of this country in the next 18 months, also shows that we are the first to give our clients an opportunity to invest in Euro products.

Did the decision to price the bond in Euro represent the cherry on the cake for investors?
I think it was important. If we had to come out with an Lm product it would have also done well but given that this is a 10 year product, we will end up paying it back in Euros anyway. We avoided any possible currency risks both for ourselves and the client because we are borrowing in Euros and paying back in Euros. This gave the bond a measure of security.

What was the rationale behind the bond issue?
The rationale is to increase our fire power internally and grow our businesses organically. Today, we operate in three areas of business; investments, insurance and property. Recently we have started a new line of business, property investment. Property prices are extremely high and unless we had quite a big capital war chest, we couldn’t really make a difference. This is key to the bond issue.

Government’s plans on private pensions are not yet clear at this point in time. What will GlobalCapital’s strategy be in this regard once the details are known?
It’s always been clear: we want to be one of the main providers of pensions. Be they second or third pillar pension schemes, we would like to be a provider of choice and we’ve already invested heavily in IT and product development, roping in our foreign and Maltese experts to make sure we come out with the best products. But we’re subject to government’s decisions on the issue.

Is the capital or the security portfolio already in place to sustain a pension fund?
Definitely, it’s already in place and we’re only waiting for the fiscal advantages from government to be able to get the necessary licences from the regulator and start rolling out our services, which in our opinion will be very good for out clients and GlobalCapital’s shareholders.

GlobalCapital is synonymous with growth. You’ve had a rapid expansion, which for some may seem to be too rapid. What is the philosophy that drives this appetite for growth and continuous change?
You’ve hit the nail on the head because change is the lifeblood of any company. Unless you adapt and change to the different circumstances, I believe you die. We are always goal orientated. The moment you start moving towards a goal is the moment you become the obstacle; this is my motto. You constantly have to set new goals and keep moving forward. The fact that we are constantly re-adjusting our goals depending on the environment we operate in be it economically or politically, means we are always changing to ensure we are ahead of the game meeting clients’ needs.

There is risk associated with this type of philosophy. How do you manage that?
There is risk associated with everything, really. We are quite conservative the way we go forward but we are not bureaucratic, which is the edge we have on our competitors. While our competitors may be slower to react to change due to their size and structures, GlobalCapital is versatile enough to change rapidly and when an opportunity posits itself we do not take too long to take it.

Bureaucracy is a favourite punching bag in this country. How do you manage to keep it to a minimum?
It works by having a very creative and young team who are on the ball and when changes need to be made the actual structure making that change does so in a very short period of time.
We do not stall in passing decisions through different committees. We do have the necessary structures to analyse decisions and manage risk but we do it fast, within a few days.

Are there any plans to go to the market with an equity issue?
Not at present. We never say no but it depends on the opportunities that come about. We would be making the necessary representations to the shareholders if it is in their interest to issue more shares to the public but I don’t see that happening in the short term.

Which are the growth areas GlobalCapital is envisaging for the next couple of years?
Mainly we are growing organically on all fronts and the seeds we’ve sown in the past are now coming to fruition in a big way. But we see pensions as a very exciting area, even if we are subject to government’s decisions, property is definitely a new area with a lot of promise but more importantly we are seeking to expand our business overseas, particularly in the Middle East and also with our representative office in Libya.
We see a lot of growth potential overseas.

What are the advantages of going overseas?
It’s really the fact that you are not dealing in a small market. The populations run into millions and selling a product in those countries opens up bigger opportunities than simply limiting the sale to a few thousands. This obviously translates into larger profits.

What is the business model you will be adopting overseas?
It is very likely we will be doing it in partnership with people on the ground. But we are very fortunate that we have a good reputation in the way we do things; professionally and technically very sound. We found that our expertise is in great demand in these areas especially in creating new products, in setting up structures and developing the necessary infrastructure. We are currently in talks with a number of partners on the ground there to develop life assurance.

How would you assess the performance of the Malta Stock Exchange?
I was one of the founders of the Malta Stock Exchange back in the early nineties and in a way I am disappointed that the take-up by private companies of the opportunity to grow their business by using the stock exchange as a tool for further development, and solve a lot of their internal problems, has been minimal.
One of the biggest problems in Malta is that most companies are family-run and when they go down into the third and fourth generations, the easiest solution to solve the internal wrangling that can arise between cousins, who inherited the business is to go to the market by turning part of the company public and bring in external management and run the business professionally.
It is sad that a lot of companies have not availed themselves of this opportunity. A lot are on the verge of doing it but they keep shying away at the last moment.
I hope that as we now get into the Euro and people are becoming more and more international in their understanding of the world of business, they would avail themselves of the opportunity afforded by the stock market to develop their business.

Is it just a question of culture that prevents more companies from listing on the stock exchange or is it also linked to the regulatory impositions made on companies wanting to list?
It’s a combination of both because family-run businesses are mostly run in a very amateurish way, usually having the head of the family taking decisions and others falling in line. And that’s wrong because physically one person cannot do everything.
I’ve been an example of that myself. GlobalCapital would not be here today in its present format if I didn’t let go of the day-to-day management and passed it on to capable management personnel in the company. That move freed me up from the day-to-day running and allowed me to focus more on the strategy and the big picture while having experts in different areas of the business to ensure that it’s done very efficiently and properly.
The family mentality, with one person at the top and a pyramid structure below, stops the growth happening. You need someone to go beyond that and understand that letting go of the old structure would enable the business to flourish and grow.
Physically I cannot do the things GlobalCapital does today and because I let go we have the capacity to grow much more than we have grown until today. Local companies need to take the plunge.

There was tribulation in the market prior to the Maltacom privatisation that the foreign buyer would de-list the company. In its negotiations Government has elicited from Tecom a commitment not to de-list the company for at least three years. Was this a positive move or would you have liked to see that commitment extended for more than three years given the size of the market and Maltacom being the company it is?
It was essential that government negotiated to have the public shareholding kept as it was and that Tecom would continue to keep Maltacom listed for a minimum of three years. That really gives the opportunity, to Tecom, a new player in Malta and the private shareholders to become comfortable with each other in terms of what value Tecom is going to add to the company in the medium to longer term. In the meantime it also gives Tecom the chance to evaluate the support it gets from the local community.
There has to be a partnership between Tecom and other private investors and we could possibly see is a repeat of what happened when HSBC bought into Mid Med Bank. The listing carried on, HSBC is comfortable to live by Maltese shareholders and obviously the bank sends most of its profits back home for consolidation, which enables the Maltese shareholders to benefit as well.

Maltacom’s sale price has raised another hornet’s nest on the real value of the company and whether government sold at the correct price. But it’s been repeated very often and by different people that share prices on the stock exchange are not a true reflection of the fundamentals of the companies listed there because they are a result of speculation. What is your reaction to this criticism?
It’s a fact that the market is small and so you get wild fluctuations that do not justify the company’s valuation at that moment in time. But ultimately, I believe the market is the best calculation of the true worth of a company and you cannot really take a one day’s share price to represent the valuation of a company. It is best worked out over a one year period, which gives a true valuation of the company in the question.
In Tecom’s case, I believe government was correct to sell at a lower price than market value because ultimately telecoms is an area that requires huge investment and Maltacom is undergoing fierce competition and unless somebody from the outside was roped in to throw in money and guarantee the jobs of all existing employees, then it would be very hard for even that valuation to be maintained. I think it was a good balance that was achieved and the market has shown trust since the shares are already 20 per cent higher than what Tecom paid. This means that the public know that the value of Maltacom now, with Tecom as a major shareholder, is worth more since the company has a potential of going forward much more than it had before.

Where do you see GlobalCapital in five to 10 years time?
We will definitely be a lot bigger than we are today. We are going to be a bit more international than we are today and we will probably be one of the blue chips of the market rather than one of the secondary stocks like we are now.
Today we have the former government companies, which are the blue chips on the stock exchange and then there are the private companies that have taken recourse to the market and the third tier of companies forming part of the alternative listing.
I would hope that within five years we will be considered as a blue chip company.

Do you see any consolidation in your line of business?
I see it very much happening in the insurance sector and the financial services sector as well. There are a lot of small players. There is a lot of fragmentation and consolidation is essential to have a healthier market going forward. For a number of players it is a matter of survival to consolidate within larger companies.

Christopher Pace was interviewed by Kurt Sansone

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