New Maltese Blockchain Company Moves To Allay Fears As Its Owner’s Other Business Posts Huge Loss

Blockchain company Palladium intends to buy a majority stake in a European bank

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Prime Minister Joseph Muscat with Paulo Catalfamo (second from right) at Palladium's ICCO

The owner of a new Maltese blockchain company has attempted to calm investors' concerns that their money will partially be pumped into a second company he owns that recently posted a loss of €2 million.

Paulo Catalfamo is executive chairman of Global Capital, a Maltese insurance and asset management firm that was in the news earlier this year when its plan to buy out the majority of shares in Lombard Bank went awry.

A few months later, Catalfamo appeared besides Prime Minister Joseph Muscat at the Malta Stock Exchange to launch an initial coin offering for his new innovative project Palladium, owned by a completely separate company to Global Capital. Named after an extremely rare metal, Palladium plans to be the world’s first regulated company that allows people to trade and bank tokenised crypto assets and securities on a regulated platform.

Its launch in July, which was intended to raise €150 million, was hailed as the world’s first-ever initial convertible coin offering (ICCO), meaning that investors could opt to convert their purchased tokens into company shares three years after their issue date.

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Catalfamo’s plan is to invest 50% of proceeds from the ICCO into the acquisition of a controlling interest in a European bank, although he refused to confirm or deny whether the bank in question could be Lombard. Another 35% of proceeds will go towards the development of a regulated crypto exchange that will allow the trading of both crypto and fiat currencies on the same platform, while the remaining 15% will go into unspecified “strategic investments in financial services and blockchain companies complementing Palladium’s business”.

Speaking at the DELTA summit last week, Catafalmo said that fundraising is going “very well” but that he has now lowered his expectation and plans to close at €100 million at the end of the year.

As the fundraising efforts were going on, Catalfamo’s other major business interest - Global Capital - posted a massive loss of €2 million for the first six months of 2018. This came hot on the heels of a year in which the group almost doubled its pre-tax profits from €2.8 million to €4.6 million.

This raised questions as to whether any of the money generated by Palladium will be used to help out Global Capital, perhaps through the 15% allotted for strategic investments, and indeed a spokesperson for the firm confirmed with Lovin Malta back in September that the two companies “may build synergies” in the future.


Palladium and GlobalCapital owner Paulo Catalfamo at the DELTA summit

Although Palladium is registered at Global Capital’s offices and although both businesses are owned by the same man, Global Capital insisted that the two companies are distinct and that it does not need additional funds for its operation.

"It is worth noting that the loss posted by Global Capital is related to specific factors that were present in the first six months of 2018, in particular an extensive restructuring process as well as fluctuations in the value of certain investments, particularly stocks and property assets," a spokesperson said. "Global Capital has actually registered an increase in sales in 2018 and is confident that – in spite of the aforementioned factors – this trend will be reversed in the second half of the current year.”

“The loss posted by Global Capital in the first six months of 2017 resulted mainly from negative movement in the fair value of its investments, particularly of local equities. It is important to note that these are unrealised values and therefore may appreciate or depreciate in accordance with the market fluctuations. They do not generate a cash loss."

"The largest unrealised loss was generated by the shareholding held by Global Capital Life Insurance in Lombard Bank, while the other component was an increase in technical reserves. This occurs in insurance companies when the business grows and therefore it should be read in a positive light.”

"GLobal Capital is generating positive cash flows and does not need additional funds for its operations. The long-planned Rights Issue, which will take place this year, is expected to create a prudential reserve to the outstanding bonds which are due in 2021. We are therefore upbeat about the future."

Although Lombard generated a €6.1 million profit in the first six months of the year, Global Capital explained that the value of its investment in the bank dropped as a result of a drop in Lombard’s share price.

Catalfamo was one of several speakers at the DELTA summit, Malta’s first official summit for the blockchain and fintech industry, last week. In his intervention, he praised the Malta Financial Services Authority (MFSA) for being approachable, while maintaining high regulatory standards.

“Having experience with regulators in other countries, I was surprised at how easy it is to deal with them in Malta,” he said. “This doesn’t mean that their standards are low but that you can just pick up the phone and meet up with them if you have a problem. In fact, when the Prime Minister first told me of his plan to regulate blockchain, I thought it was a great idea precisely because of Malta’s business environment, strict in regulation but also pro-business."

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Written By

Tim Diacono

Tim Diacono tends to clam up when asked to describe himself. You can contact him on [email protected]