NDSF insists Lombard Bank should seek 75% approval for planned new share issue

A state agency that disburses Malta’s golden passport cash funds will be registering a formal complaint in the coming days with Lombard Bank – in which it holds a 49% stake – about the bank’s plans for a new share issue, Business Today has learned.

The National Development and Social Fund (NDSF) will be insisting that any action by Lombard Bank, headed by CEO Joseph Said, that results in a dilution of its shares should have the approval of at least 75% of the bank’s shareholders.

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.

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

Since then however, the government has not divested itself of its shareholding as originally intended.

Sources told BusinessToday the previous administration had agreed that the NDSF would not be represented on Lombard Bank’s board of directors, despite its shareholding.

Moreover Louis Grech was to be appointed executive chairman, but this never materialised, the same sources claimed.

In fact this newspaper is informed that the current administration is moving fast to ensure it - through the NDSF - is properly represented on Lombard Bank’s board.

BusinessToday last week reported that 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 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, which is intended to allow easier access to a larger number of investors to acquire shares, so that this increases trading liquidity in the share issue.

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.

Share issue, share split

The announced share issue – and not the share split – has current and prospective investors worried. 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.

That is an issue of no concern to either small or incoming retail investors. But to the Maltese government and other corporate investors, it leads to a diluted influence.

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.

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.

Lombard Bank is to ask its shareholders to approve a 2-for-1 share split as it looks to attract new investors by issuing new shares. Directors are recommending that each €0.25 share be split into two, each with a nominal value of €0.125.