ICG and Beazley woo income-hungry investors with ‘retail bonds’

| September 10, 2012 | 0 Comments

Tanya Jefferies

06:09 EST, 10 September 2012


08:57 EST, 10 September 2012

Fund manager ICG and insurer Beazley have joined the recent rush of businesses looking to raise cash by issuing ‘retail bonds’ – which are seeing such high investor take-up they typically close before their deadlines.

Savers casting around for higher returns are being targeted by firms trying to rustle up extra funding by offering eye-catching rates of as much as 6.25 per cent.

And retail bonds have proved a runaway success of late because the interest rates are better than people can get on savings products, although they are riskier.

If you buy company debt via these bonds, the money you make back depends on the firm involved not going bust and you are not protected by the UK’s £85,000 Financial Services Compensation Scheme if the worst happens.

Higher returns: Retail bonds are proving popular because interest rates are better than people can get on savings products

Higher returns: Retail bonds are proving popular because interest rates are better than people can get on savings products

Fund manger and lender Intermediate Capital Group is offering an eight year ‘retail’ bond at 6.25 per cent – but its deal closes at 4pm today, two days earlier than scheduled. 

Specialist insurer Beazley has also just launched a seven-year bond offering 5.375 per cent with the aim of raising £50-75million. The deadline is 20 September, but it may also close early if there is strong demand.

Earlier this summer, City money broker ICAP achieved great success with a 5.5 per cent retail bond that runs for six years. It closed the offer five days before the deadline after raising £125million, when it was hoping for just £50million.

Other companies that have targeted Britain’s income-hungry small investors with retail bonds have included Tesco, Severn Trent and real estate investment trust (REIT) Primary Health Properties.

How do company ‘retail bonds’ work

Private investors loan companies money by buying their ‘retail bonds’.

The minimum amount starts at a very low level – sometimes as little as £100 but more usually from £1,000 – and companies use the money raised to grow or to fund their activities.

Investors earn interest on the bonds while they hold them. The bonds run out or ‘mature’ on a fixed date in the future when all being well you get your money back.

The London Stock Exchange runs a retail bond market which allows you to buy and sell bonds before the maturity date.

You can make some money on them early if they are trading higher than the initial offer price – but you might lose money if you sell when they are trading lower.

These ‘retail bonds’ are specifically targeted at small investors and are separate from the far larger corporate bond market dominated by institutions.

Other more niche bonds have been issued by so-called ‘passion brands’, like boutique hotel firm Mr and Mrs Smith and healthy fast-food chain Leon Restaurants.

These are not tradeable on the bond market but can offer higher returns, especially if you are prepared to accept them in the form of vouchers instead of interest. One earlier issuer, Hotel Chocolat, even pays out in boxes of chocolate.

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