The Dingli Interpretation Centre, which was exposed by this newspaper last week as having been illegally developed into a restaurant, has received close to €500,000 in loans from the young sole shareholder himself and in 'other loans' made by unknown individuals.
The loans issued to the one-man company, La Pinta Ltd, which runs the Dingli Interpretation Centre as a restaurant in an apparent gross contravention of a specific preclusion of Class 6 activity in the Malta Environment and Planning Authority permit issued to Parliamentary Secretary Ian Borg at the time when he was Dingli Mayor, were also given on exceptionally easy terms, according to audited accounts of the company for the year ended 31 December 2014.
Formal investigation should delve into the ownership and financing structure
The complaint filed with a number of Maltese and European agencies over the state of affairs of the public property by Maltese citizen Noel Ciantar requests that part of the formal investigation by the authorities should focus on the nature, source, terms and ownership of the loans.
It seems that particular attention is needed in respect of the 'other loans' since, based on their terms, amount and timing, their existence appears difficult to understand. Among other matters, the complaint includes reference to the risk of money-laundering and corruption that could arise through the use of such loan accounts.
Until formal investigations into the matter have been carried out, the question as to whether or not the Interpretation Centre is able to attract investors' cash like a low-risk blue chip company or whether it generates funds internally like a cash cow may remain a 'matter of interpretation.'
Total loans at end 2014 amounted to €481,000
The 2014 annual report submitted to the Malta Financial Services Authority in October 2015, shows that the company had total loans amounting to around €481,000 at the end of 2014.
The balance comprises a shareholder's loan, amounting to around €386,000 which is due to the sole shareholder of the company, and 'other loans' from unspecified sources amounting to around €95,000.
Somewhat unusually for a one-man company, the business of which should have been running a rather unprofitable activity consisting of a rural tourist information centre, all loans availed of by La Pinta are on extremely easy terms. In fact, according to the audited accounts, they are all interest-free, unsecured and without a date of repayment.
These terms rule out the possibility that the 'other loans' were sourced from banks.
Loans on interest-free terms are usually associated with companies experiencing persistent losses, perhaps due to a turbulent patch in their business, but such terms are unusual for companies operating profitably, as is the case of La Pinta Ltd. In fact, the company's accounts show that since 2012, the company was able to set aside some profits every year, and at the 2014 year-end the profits so reserved totalled circa €43,000. However, since an income and expenditure account is not published, it is difficult to state whether such amounts set aside represent the actual total annual profits or a residue after dividend appropriations.
The company's profitability since 2012 coincides with the commencement of the business of The Cliffs restaurant which, based on TripAdvisor reviews, opened around March 2012. Ever since then, the restaurant on the Dingli Cliffs has been a magnet for visitors.
The unsecured nature of the loans to La Pinta Ltd is on the one hand understandable because in reality the company's main asset, which is understood to consist of the development of the premises on the leasehold land at the Dingli Cliffs, is effectively government property, and therefore not subject to hypothecs.
The lease agreement signed by the Lands Department and the Dingli Local Council on 17 May 2006 specifically states that "the lessee may not impose any hypothec, lien or charge of whatever nature on the property let." On the other hand it is still unusual, since one would expect any commercial loan on an arm's length basis to be secured.
In substance, the interest free, unsecured and no fixed date of repayment terms suggest that the loans are made available as a very close substitute to share capital and on a similar risk basis.
The loan amounts, their source and the size of movements
In addition to the terms, the amounts of the loans, their source and the year-on-year movements also raise eyebrows.
The sole shareholder's loan to the company amounted to approximately €386,000 at the end of 2014. In itself this must represent a very significant amount of personal savings, considering that the owner of La Pinta Ltd is a relatively young man from Dingli. It is hard to understand the economic logic as to why so much money could be injected into a company like La Pinta Ltd without interest income and without adequate security.
During the year 2014 alone, the loan from the shareholder increased by a staggering amount of around €334,000. It is a known fact that the shareholder, a chef, works in the restaurant – The Cliffs – and therefore the derivation of such a large sum in such a short period can either be attributable to income from the restaurant activity itself or to some unusual personal transaction.
'Other loans' from unspecified sources fall by exactly €25,000 in one year
At end of 2014, the balance of 'other loans' amounted to €95,028, but a year earlier that balance had stood at €120,028.
While the balance itself is quite significant, considering that no interest is payable to those 'others' and that this balance is unsecured, it is the year-on-year decrease of exactly €25,000 in 2014 which is most conspicuous in this case. However, any analysis based on movements during the year as shown in the accounts can only capture net movements, which may be made up of loan increases and off-setting payments.
It would seem that whoever owns the 'other loans' made a withdrawal on account and that some repayment of the 'other loans' which have no fixed date for repayment was due after all.
Company depended mostly on 'other loans' from unspecified sources at start-up stage
A historic analysis of La Pinta Ltd's accounts shows also that, in the early years – particularly from 2010 to 2012 – while the company was investing in the development of the new buildings at Dingli Cliffs, it relied for its short-term financing mainly on the balance of 'other loans' from unspecified sources which had peaked at €120,028 already by year-end 2011, exceeding by a wide margin the balance on the sole shareholder's loan which, at that time, stood at circa €22,000.
'Other loans' point to the possibility of silent owners other than the declared sole shareholder
In the absence of more specific information about the source of the 'other loans', one plausible 'interpretation' is that, considering the terms and the amounts, the 'other loans' are indicative of a silent ownership and control in La Pinta Ltd by a person or persons other than the declared shareholder, who had a strong interest in the start-up of the company.
Most of the funds from the loans appear to be sitting in the bank
Bizarrely, La Pinta Ltd also held €361,000 in cash and bank balances at year end 2014. In substance, a significant portion of the loans – an amount almost equal to the entire shareholder's loan – was sitting idly in the bank.
It is not known if the company has any development plans for The Cliffs – there are no recent Mepa applications on the site if that is any indicator to go by in this case – and therefore the economic logic of such loans on such easy terms becomes increasingly puzzling.
Year-on-year, the cash and bank balances surged by €230,000 over the course of 2014.
External cash injections or internally-generated cash profits?
One possible explanation for the sudden explosion in the shareholder's loan balance is that, rather than being a cash injection by the shareholder from external sources, it represents the cash profits generated within the business.
If the latter is the case, then the increase in the loan would be an indication of the annual profitability of the restaurant, although this analysis could still be impacted by any payments on account of the loans. On this basis, the surge in the shareholder's loan by €334,000 in one year would suggest a strong restaurant operation. Since an income and expenditure account was not available because the company publishes abridged accounts, this possible conclusion cannot be discerned with certainty from the accounts.
Easy access to easy cash undermines justification for EU funds
The debt of La Pinta Ltd and the terms on which it is availed of suggests that the company has easy access to easy money, whatever its source. If this is the case, it is difficult to understand how it could be a priority to grant the company EU funds.
Company set up with tiny capital despite its bid for a capital project
La Pinta Ltd was set up with a tiny capital of €1,165 on 2 October 2007, just three days before the publication of a tender requesting expressions of interest for an "interpretative centre at Dingli," in which tender the company was the sole bidder and the winner. In 2012, the company was awarded circa €64,000 of EU co-financed ERDF funds for "D Cliffs Interpretation Centre".
The value of the company's investment in the property at the Dingli Interpretation Centre peaked at around €172,000 in 2012, according to the company's books. That value is subject to annual decrements based on accounting depreciation.
2014 accounts received 'clean' auditor's report
The auditor's report for 2014 gives the company a clean bill of health, and makes no reference to any exceptions or emphasis on any matter. The auditor made no reference to the fact that the operations of the company at The Cliffs are possibly in violation of a Mepa permit for the site, even though this appears to be a very significant matter for the company's business.
Company draws up abbreviated accounts
The size of La Pinta Ltd permits the sole director of the company to draw up greatly abbreviated accounts for publication, in terms of law, which exclude important information such as an income and expenditure account and several explanatory notes to the accounts, but sufficient detail is available nevertheless about cash and debts to permit a glimpse into the 'unconventional' financing structure of the company.
Also see: http://ift.tt/1Tt163i; and
http://ift.tt/1Rfp0NOfrom The Malta Independent http://ift.tt/1oH0VFY
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