Melite: investors fear insolvency as owners again withhold lifeline

A stockbroker representing bondholders of the Melite Finance group has said it is unacceptable that investors will be asked to accept lower returns in an October meeting, when interim accounts have not yet been published.

The financial regulator this week suspended the listing of Melita Finance plc’s bonds for 10 days after the company failed to publish its unaudited interim financial statements for end-June.

Melite, whose subsidiary is the owner of the Accessorize retail licence for a string of stores in northern Italy, will convene a bondholders meeting within the first week of October, requesting the green light for the reduction of the 4.85% coupon on its €9.25 million bond issue.

The group was hard-hit by the COVID-19 lockdown in Italy, forcing it to shut down its stores and find new tenants for several of its stores.

But Paul Bonello, of stockbrokers Finco Treasury Management, said it was “unacceptable” that the bondholder’s meeting be allowed to take place without the necessary transparency by way of published interim accounts reviewed by auditors. “Without such financial statements, bondholders will not be in possession of the necessary financial information in order to take a decision on a fully informed basis on the various proposals to be tabled,” Bonello said.

The retail franchise chain suffered €4.2 million in losses last year due to the COVID closures of its Italian fashion shops for the Accessorize, Monsoon and CKU brands, and more worryingly saw its equity spiralling down to €1.3 million at end of year 2020.

The company operated some 26 properties in Italy, but the ravages of COVID-19 across Italy forced a severe lockdown that killed business in the country, and forced Melite to rescind its leases on the stores.

The bondholders meeting will now take place by no later than 8 October, with all ancillary documentation to be communicated by 10 September, including interim management accounts for the company and subsidiary Melite Properties.

The listing authority bye-laws do not specify that interim accounts are necessarily audited or reviewed by the auditors.

But Bonello said that it was strongly suspected that the company’s shareholder funds may by now have been completely wiped out by the accumulating losses. “In the current circumstances, where it is suspected the company may already be insolvent, the auditors’ review assumes greater importance,” he said.

In August, shareholders Alf. Mizzi, Marina Milling, and the Ganado family, were requested by the Melite board to consider whether they were in a position to provide additional support to the company, over and above the €1.1 million loan to the company they provided. “The shareholders were not in a position to uphold the request tabled at the meeting,” the board said.

Shareholders have so far not proposed increasing their share capital.

The company secured €449,000 from the Malta Development Bank’s Covid Guarantee Scheme to meet its interest payments for its €9.25 million bonds. The €1.1 million loan will be as part-capital contribution to the company (€630,000) that will be repayable at the option of the company after the 2028 bonds are redeemed; and €470,000 in a non-interest loan, repayable within five years.

“It is customary, moreover, for such statements to be reviewed by the auditors,” Bonello said.

“Indeed, even the interims published by the same Melite in previous years 2020 and 2019 were so reviewed.In my opinion, the real reason why Melite Finance has decided not to produce interim accounts reviewed by the auditors, is that PricewaterhouseCoopers are unable to confirm the going-concern assumption underlying all financial statements of solvent companies.

“As time passes it is evident that what Melite Finance expects is that the supposedly secured bondholders effectively bail out the company in a situation where the entire shareholders’ funds have dried up, and shareholders are unwilling to put their money where their mouth is and inject a few millions by way of risk capital.”

In 2019, Melite issued a €9.25 million bond to finance a restructuring of the group, whose principal activity is the acquisition and sub-leasing of property rights for Italian retail outlets. But now the group wants bondholders to reduce the bond interest rate from 4.85% to 3.5% as from November 2021.

The company intends convening a meeting for bondholders on a proposal to reduce the coupon on the bond, which Melite says must “reflect the economic realities which the company and subsidiary Melite Properties face and will continue to face.”

Melite Finance’s stores in the cities of Bolzano, Como, Florence, Padua, Pavia, Milan, Turin and Treviso – previously sub-leased by its subsidiary Melite Properties – will be taken over a third party already operating its own brand across more than 80 stores all over Italy. It will also assume responsibility for the Accessorize franchise in Italy.

Melite also concluded agreements for the subletting of seven other stores to third-party operators unrelated to the Accessorize brand, while one store remains vacant.

Clarification: The original caption to this story erroneously referred to Melite as the franchise owner of Accessorize in Malta. This was incorrect. The Melite group own the licence for the shops it operates in northern Italy, and not in Malta, where it is operated by another business group.