26 July 2006

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Business Today

Government turns to the market for more funds

The Government of Malta, for the second time this year has turned to the market to collect no less than Lm10,000,000 in Malta Government Stock that matures in 2014 with an annual rate of interest at 5.1%.
The new stocks come with an over allotment option of a further Lm9.25 million.
Any one interested in subscribing has two options. If a person is ready to buy up to Lm50,000 then he or she will pass through the normal application process but paying Lm105.5 for Lm100 nominal. The stock shall be sold in multiples of Lm100. On the other hand, if an investor is ready to apply for more than Lm50,000 in stock, then he is to tender a price.
Comparing this stock issue with what was trading for a similar bond, the offer is priced at a minimal discount to the trading patterns of the existing issue of 5.1% expiring also in 2014. Here the last trading price on the secondary market was Lm106.07.
Interest shall be paid half yearly in January and July. The first interest will be paid in January 2007. Also, this stock will be integrated with the existing 5.1% 2014(III) on 6 January 2007.
In all, there are Lm44.25 million of government stock for redemption this year of which Lm25 million have already been issued. The stock to be redeemed in August had an interest rate of 7.25%. Therefore the Government shall be lending at a lower annual interest rate to service its debts. Since the yield to maturity is 4.28%, and priced at a slight discount to recent secondary market trading for similar coupons, it is expected that the demand will be high.
Offers opened on Monday and are scheduled to close tomorrow at noon. Firms licensed to conduct Investment Services by the Malta Financial Services Authority are inviting clients to act quickly as the demand is expected to exceed the supply.
Following the correction of the shares market index experienced in quarter two of this year at the Malta Stock Exchange, the stable bond prices may also encourage the demand from investors looking for portfolio shifts.

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