Debt & Pastizzi: How to Tell if a Maltese Company Is Borrowing Beyond Its Means

**How Much Debt is Too Much? A Maltese Guide to Reading a Company’s Leverage Before You Invest, Work, or Buy Local**

Valletta – When Jean Paul Borg told his Ħamrun barber that the family-run pastizzeria chain he works for had just “leveraged up” to open three new outlets in Gozo, the reply was swift: “Leverage? Nibqaw nixtru minnhom, jew nidħlu aħna f’dejn ukoll?” The barber’s joke captures a very Maltese tension: we are a nation of savers (the 2023 ECB Household Finance Survey puts Maltese net liquid assets among the EU’s highest) yet our companies are increasingly living on borrowed money. Understanding how much debt a firm carries – and whether it can carry it – is no longer a question for Sliema hedge-fund analysts. It is a kitchen-table issue for employees, suppliers, and the village band club that depends on corporate sponsorships for its festa fireworks.

**Why leverage matters on a rock where everyone knows everyone**
Malta’s domestic market is tiny; word of mouth travels faster than a Gozo channel ferry. When a mid-sized contractor starts delaying €300 cheques to sub-contractors, the ripple is felt in the quarry, the plaster supplier, and the roadside kiosk that cashes workers’ wage packets. “Leverage is inherently neither good nor evil,” explains Stephanie Xuereb, Head of Credit Risk at Bank of Valletta. “The question is whether cash generated tomorrow can service the interest booked today.” In practice that means asking three questions:

1. **Is the debt in euro or foreign currency?**
After the 2008 Icelandic bank collapse, Maltese tourism operators who had taken cheap Swiss-franc loans for hotel refurbishments suddenly owed 30 % more in euro terms when the franc soared. Currency mismatch remains a silent killer.

2. **Who is the lender – bank, bondholders, or uncle?**
Maltese family firms often issue “private company bonds” sold to neighbours, yielding 4.5–6 %. If the firm stumbles, the fallout is social as well as financial; entire village savings can be vaporised.

3. **Are assets pledged against the debt tangible or intangible?**
A St Julian’s iGaming licence can be worth millions, but its resale value in a fire-sale is uncertain. Compare that to the limestone warehouse in Paola that has been rented to the same importer since 1978 – bricks you can touch still count for more in a creditor queue.

**Red flags you can spot without a CFA diploma**
The Malta Business Registry now publishes abbreviated financials free of charge. Look for:

– **Interest cover below 2×**: operating profit divided by interest expense. If the number is under 2, the company earns only twice what it pays in interest – a thin cushion if tourist arrivals dip or if a Russian IT client relocates overnight.
– **Debt-to-equity above 70 %**: common in aviation leasing and luxury yacht marinas, but dangerous for a local supermarket whose margins are basically capped by the neighbourhood’s spending power.
– **Negative cash flow from operations for two consecutive years**: even if net profit looks rosy thanks in part to revaluing Marsascala property, the firm is structurally burning cash.

**Cultural nuance: the “bait-and-pray” festa mentality**
Every August, village committees spend tens of thousands on pyro-musical displays, hoping donations will cover the tab. Corporate Malta sometimes mirrors this “bait-and-pray” approach: borrow for a flashy expansion, then pray for continued EU growth or a new citizenship-by-naturalisation pipeline. Psychologists call it over-confidence bias; auditors call it impairment risk.

**Community impact when leverage goes wrong**
Take the 2022 liquidation of a well-known Paceville restaurant group. Besides 120 lost jobs, the closure left suppliers – including a Qormi farmer co-op – holding €1.2 million in unpaid invoices. The co-op had to cut milk prices paid to members, showing how corporate leverage seeps into rural pockets. Conversely, modest leverage allowed family-owned Crafts Village glass-blowers to export to France, safeguarding 40 Gozitan jobs.

**The takeaway**
Before you accept that job offer, extend trade credit, or buy €5,000 of “7 % secured bonds” touted at the local każin, spend ten minutes on the company’s last accounts. If the debt stack looks taller than the Portomaso tower and earnings are as wobbly as a dghajsa in a January gale, walk away. Because in Malta, when a leveraged company sinks, it rarely goes down alone – it takes cousins, neighbours, and the village festa with it.