Midi plc bondholders could feel some Brexit pain

Brexit may have punished existing Midi plc bondholders who intend replacing existing bonds with part of the new 4% 2026 bond issue.

The new €50 million issue by the Tigné Point developments will pay off maturing bonds worth around €40.8 million, as well as other obligations and general maintenance and restoration work.

As spotted by independent business consultant Kyle Debono, part of the existing bonds being replaced are denominated in British pound sterling.

That means the conversion rate for the GBP bonds – since the new ones will be issued solely in euros – was established after the Brexit referendum at €1 to £0.834, which means GBP bondholders got a rotten deal on the exchange.

“On top of that existing holders who used to earn 7% will not be earning 7% until December, which is the actual maturity date of the existing bonds. If existing bondholders invest into the new bond they will start earning 4% from when it is issued and forgo the difference in rates until December,” Debono says.

Of course – Debono adds – nobody knew the outcome of the Brexit referendum when the sentiment right up to the eve of the plebiscite was that the UK would remain.

“Clients with GBP bonds may still keep the bonds until maturity in December, earn 7% and then convert the bonds – or remain in GBP. The currency risk was always a factor that everyone was aware of. They would just lose the opportunity to invest into the new 4% bonds.”

Midi’s €50 million bond issue will be secured by a special hypothec over the commercial property, car parking spaces, storage rooms, shares in T14 Ltd and other property earmarked for development owned by Midi. Interest will be paid annually and the bonds will mature in 2026. Minimum subscription amount is €2,000.

The company will be giving preference to its shareholders and the bondholders of the 7% 2016/18 bonds who will have the opportunity to exchange all or part of their holdings in the maturing bonds to the new 4% bonds.