Ex-minister in Falcon reprimand spearheading Von der Heyden bond

Former Nationalist finance minister Tonio Fenech, who in 2017 was officially reprimanded by the financial services regulator as a non-executive director of a pension fund that lost millions in Swedish pensioners’ savings, is now spearheading a second bond issue in five years for Von der Heyden Group, which some industry players have accused of borrowing Maltese money to spend abroad.

Fenech was previously a director of Falcon Funds, a pension fund that was marketed in Sweden and the subject of a criminal investigation in Stockholm after millions in savings were lost. He was later exonerated by the Swedish investigators of all charges.

After the Swedish pensions authority claimed the fund was unable to pay back €247 million in savings because of ‘major investment fraud’, the MFSA put Falcon Funds under the control of auditors KPMG in 2016.

Then in October 2017, the MFSA had issued a stern reprimand to Tonio Fenech and directors Ian Zammit and Joseph Xuereb.

“From the review of the modus operandi of the directors of the scheme, the MFSA determined that the Board failed in its primary responsibilities toward the Scheme and its investors,” the regulator said.

Fenech and the other two directors were prohibited from accepting any new appointments which required MFSA approval in entities or for activities licensed by the MFSA for a period of two years.

Later that year, the Swedish investigators closed down their criminal investigation and freed Fenech, Xuereb and Zammit from any suspected offences.

The Swedish Economic Crimes Police concluded: “There is no longer reason to complete the criminal investigation. On that investigative material that is currently available it cannot be proved that the person or those who have been suspects have been guilty of crimes. Further investigation cannot be assumed to change the state of evidence in a decisive way.”  

Now, Fenech is chairman and executive director of Von der Heyden Group Finance plc.

On 11 October, the company announced it had been granted approval by the Malta Financial Services Authority for the listing of a new 10-year €35 million bond issue with an annual interest rate of 5% on the official list of the Malta Stock Exchange.

Fenech is also executive director of Timan Investment Holdings Limited, the group’s parent company which is acting as guarantour of the bond issue.

The company had already issued a €25 million bond in 2017 and €25 million of the new bond issue are to be used for the redemption of the first bonds, due to mature in 2024. The remaining €10 million will be on-lent to Timan Investments Holdings Ltd for the part-financing of the group’s Andersia Silver project, and for general corporate funding.

Red flags

But a number of players in the financial services sector have contacted this newspaper, expressing disbelief that the MFSA granted approval to a new bond issue by Von der Heyden Group.

“At the time of the first issue, the group was already in a very precarious state,” a financial consultant said, on condition of anonymity. “They had been making losses in excess of €3 million for the previous three years with negative cash flow from operations every year.”

The consultant said that included in the company’s first bond issue prospectus, had been a commitment to “developing high quality office buildings and owning and managing hotels and residential properties in Poland , Germany, Spain and Malta.

“But after five years, no property or business has been acquired in Malta,” the source said. “To date, there is only a hotel management agreement for the Cugo Gran Macina Grand Harbour hotel in Senglea and a participation in a restaurant management company.”

Another financial services operator told BusinessToday that the MFSA should have launched an investigation into Von der Heyden’s use of the €25 million it raised in 2017, instead of granting approval to the company to seek a further €35 million from the Maltese to “invest in a black box”.

“Von der Heyden has already raised €25 million from the Maltese market, and invested hardly any of its proceeds in Malta,” they said. “And this new bond issue is guaranteed by a company which has been losing money, has negative cash flow and whose equity is lower than the value of the new bonds.”

Since the issue of the first bond in 2017, Timan Investments Holdings Ltd recorded a loss of €2.2 million in 2019, €1.7 million in 2020 and €2.2 million in 2021. And as of June 2022, it had recorded a loss of €3.8 million.

When contacted by BusinessToday, Fenech acknowledged that the parent company had recorded a loss in the past three years, but put it down to the effects of COVID-19 on the property and hospitality industries, in which the company is heavily invested.

He also acknowledged that plans for Malta had not been fully realised.

“The group had an agreement in place to operate a boutique hotel in Valletta but those plans fell through when all construction and heavy work in Valletta was prohibited in the run-up to and during the Valletta 2018 celebrations as EU culture capital,” he said.

Fenech said that the Group now had a promise of sale agreement in place for the Cugo Gran Macina Grand Harbour hotel.

“We have also solidified a 50% shareholding in the five Hammett’s restaurants in Malta, and are also finalising a warehousing project in the south of Malta.”

Fenech acknowledges that Timan Investments did experience a cash flow issue due to COVID-19, but insisted that it was often the case - even without the effects of a pandemic – for a property company that puts up a heavy initial financial outlay to see returns slowly.

As to the new bond issue, he said that the Group was giving preference to the present bondholders. In fact €25 million of the issue have been dedicated for the roll-over while €10 million will be available for subscription by new investors.

Andersia Silver, the Group’s flagship project, is a 40,000 sqm A-class office tower in Poznań, Poland, having an investment value of over €105 million. The 116m high skyscraper will be Poznań’s highest building after its Andersia Tower (105,2 m) being developed through a joint venture company between the Von der Heyden Group and the City of Poznań.

Fenech said that the Group had already secured €55 million in loans from three banks, as well as 10% of its office tenancy in pre-leases ahead of construction.

Von der Heyden Group, through a number of subsidiaries, is involved in real estate development and asset management, hospitality and catering, private equity and investments.

The group’s ultimate beneficial owner, Sven Von der Heyden, has been a resident in Malta for eight years.

Following publication of this article, BusinessToday received the following statement from Von der Heyden Group:

The assertions that the Group was in a precarious state when issuing the 2017 bond is completely unfounded.  The Group in the process of issuing the bond in 2017 had passed through a rigorous review by the Authority and found of sufficient financial strength to support the issue of the bond.

We fail to understand why the paper perceives it to be negative that a group raises money in Malta and invests outside of Malta.  This is a practice done by various Maltese based investment companies including IHI owners of the Corinthia Group, Hili Ventures, and others.    The Group was very clear in its current and former prospectus that our main investment strategy is outside of Malta, with however an interest of also investing in the local market.  For many investors this is a plus, and not a “red flag” as its many existing investors see the strength in investing through Von der Heyden and other similar Groups as a diversification outside of Malta which many portfolio investor advisors see as a strength.

On the past and present strategy of the Group when it comes to investments in Malta was very clear.  The Group in the first issue had indicated its intention to have two hotel operations in Malta.  The Cugo Gran Macina as a flagship project we have proudly operated since 2017, and we invested in a joint venture the Hammett’s Restaurant group which we grew from one restaurant to five establishments in five years.  We had an intention to operate another boutique hotel in Valletta but for the reason you rightly quoted in your article, this did not materialize.

The said quoted financial consultant makes erroneous statements on the financial state of the Group.  On the financial performance, despite the unprecedented difficult past two years due to Covid the Group maintained a very strong financial position.  The Group managed to retain a strong liquidity position, with cash and cash equivalents and other liquid financial assets amounting to €31,405,734 as at 31 December 2021, far in excess of the €25 million bond the Group has in issue.  

The Group's total assets on 31 December 2021 amounted to €133,518,232 with a heathy gearing ratio, of 56.5%, far from the incorrect statement made that “the equity is lower than the value of the new bond”. The Group has a €41 million equity position.

On the suggestion that the MFSA should have launched some sort of investigation on the use of the original bond, may we clarify that before issuing the bond, as all other issuers, we went through a rigorous screening process by the Authority to ensure that as an issuer we have the strength to raise the bond and the ability on the basis of the investment strategy that we presented, to repay fully the bond and the interest to investors. 

The Group in its 33-year history has never defaulted on any loan or interest repayment, including the bond issued in 2017.  Far from a “black box”.  We have published a detailed prospectus, a financial analysis summary and a presentation of our investment strategy.  We are also very of the success we have achieved with the strategy presented for the bond issue of 2017.  The Group just three years after the bond issued successfully completed its cornerstone project for the bond, the Blue Tower in Munich which sold for over €265 million, which substantially strengthened the cash position of the Group and the wellbeing to its investors.

MFSA reaction

BusinessToday reached out to the MFSA for clarification of the issues raised. This is their statement:

The Authority cannot comment on specific applications. However, in general, when considering applications for admissibility to listings on a regulated market in Malta, the Authority assesses the relevant documentation submitted with the application to ensure compliance with the EU Prospectus Regulation, the Financial Markets Act, the Capital Markets Rules and the MFSA Listing Policies.

The Authority makes sure that the prospectus meets the standards of completeness, comprehensibility and consistency required by the EU Prospectus Regulation. The Authority focuses on transparency in the market, making sure that the information, including any relevant risk factors, is clearly included in the prospectus for a prospective investor to be able to make an informed decision.

Therefore, we would like to emphasise that the focus of the review of an application for admissibility to listing is transparency, which ensures that investors have the required information to make an informed decision.

The Authority encourages prospective investors to always seek independent financial advice before deciding to invest in any listed financial instruments. A prospective investor should be aware of the potential risks as highlighted in the prospectus in investing in the securities of an issuer and should make the decision to invest only after careful consideration and consultation with his/her own independent financial advisor.