From Sliema cafés to Gozo hotels: How Maltese savers can dodge corporate-bond traps

Avoiding pitfalls: Some considerations before buying corporate bonds
By Karl Vella, Hot Malta Business Correspondent

On a humid August evening in Sliema, while tourists queue for gelato and the bells of Stella Maris echo across Balluta Bay, a quieter conversation is unfolding on the terrace of a seafront café. Two friends—Maria, a 38-year-old pharmacist from Mosta, and her cousin Luke, who manages a family-run construction firm—are debating whether to park €25,000 of their savings in the new 5.5 % corporate bond issued by a Maltese hospitality group expanding into Gozo.

Their dilemma is quintessentially Maltese: a nation of savers who mistrust volatile equities yet crave better returns than the 0.3 % offered by traditional term deposits. Corporate bonds, once the preserve of pension funds in London and Frankfurt, have become dinner-table talk from Mdina to Marsaxlokk. But as listings on the Malta Stock Exchange multiply—seven new issues this year alone—so do the cautionary tales of retirees who mistook “secured” for “risk-free” and watched their coupons dry up when a seaside hotel project ran out of cement and cash.

Rule number one: read the prospectus like it’s the parish ħelu tal-ħelu recipe—slowly and twice. Maltese issuers often wrap marketing brochures in the blue-and-yellow colours of the national flag, implying patriotic duty. Resist the reflex. Turn to the risk factors, usually buried after glossy photos of Mellieħa sunsets. Ask: is the bond secured on property whose title is still tangled in 19th-century emphyteusis claims? Does the issuer rely on Russian tour groups whose flights may be grounded by the next geopolitical hiccup?

Local culture prizes il-għaqda, the spirit of community support. That can cloud judgment. When a Marsaxlokk tuna exporter offered 6 % bonds last spring, half of the village subscribed within days—only to discover that the security pledge covered ageing fishing vessels already mortgaged to HSBC. The parish priest, who had encouraged parishioners to “help Maltese enterprise,” now preaches diversification instead of devotion.

Second, gauge liquidity. The Malta Stock Exchange’s corporate bond market is thin; bid-ask spreads can exceed 3 %. If you need cash for a granddaughter’s university fees in Edinburgh next October, you may be forced to sell at a haircut. Luke’s builder friends treat bonds like klikka—assuming they can offload them to a cousin. But cousins get cautious too, especially when interest rates are rising abroad and the European Central Bank is hinting at tighter policy.

Third, interrogate the coupon’s sustainability. Maltese companies often dangle eye-catching yields—5 %, 6 %, even 7 %—to compensate for perceptions of country risk. Compare that coupon to the firm’s earnings before interest and taxes (EBIT). If the coverage ratio is below 2, the dividend could be the first casualty in a downturn. Maria pulled up the issuer’s 2023 accounts on her phone: interest cover at 1.3, flagged by auditors for “material uncertainty.” She winced; the gelato queue suddenly looked wiser.

Fourth, consider currency and inflation. Most local bonds are euro-denominated, shielding Maltese savers from forex risk. But with Eurozone inflation hovering around 5 %, a 4 % coupon is still a real-terms loss. Factor in the iż-żieda fil-prezzijiet at the supermarket: rabbit, ħobż biż-żejt, and diesel for the boat trip to Comino. Your purchasing power matters more than the patriotic glow of a Maltese logo.

Finally, think about community impact. When a bond finances a solar-panel factory in Kirkop that hires 120 locals, the upside is visible—reduced electricity bills, apprenticeships for MCAST students. When it bankrolls a speculative tower in Tigné that blocks historic views of Valletta, the social licence is shakier. Luke, whose firm sponsors the village festa fireworks, concedes he’d rather earn 4 % in a sustainable logistics hub than 6 % in a project that obliterates a beloved horizon.

As the sun dips behind Manoel Island, Maria and Luke agree on a hybrid strategy: €10,000 in a short-dated, investment-grade bond issued by a Maltese telecom with steady cash flows; the rest in a diversified European green-bond ETF. They clink their Kinnie glasses to prudence, not patriotism. Because the real Maltese spirit isn’t blind faith—it’s resilience born of centuries navigating rougher seas than any balance sheet.