Saturday will be the fourth anniversary of the London Stock Exchange’s opening of its Order Book for Retail Bonds.
In that time, companies have raised £3.9 billion with just over 40 different issues. Only last week, buy-to-let lender Paragon upped its second retail bond from £100 million to £125 million and closed the offer earlier than it had expected. These bonds yield 6.125% and mature in eight years time. It made a £60 million issue this time last year.
Retail bonds are great for companies such as Paragon because they offer their treasurers and finance directors a different source of finance other than banks, shareholders and conventional bondholders. Pricing can be tight and the relative costs of issuing such bonds is low.
For Paragon, total fees on the latest £125 million issue were just £1 million. That is below 1%, and compares very favourably with the kind of charges made on initial public offerings or rights issues. From the investor point of view, retail bonds offer the kind of returns they cannot find in conventional savings, and without the kind of risk attached to shares.
The range of companies that have tapped the market is wide with a preponderance of “other financials”, but also property and retail firms. Most are blue-chip, and the capital is pretty much safe.
The growth in the market is demonstrated by the fact that trade on the LSE’s order book jumped from £66 million in 2011 to £251 million last year. That shows the benefits of the Exchange providing liquidity to the market, which incidentally has also had a knock-on effect in retail investors buying gilts.
Retail bonds are one of those rare things that have proven good for issuers, good for investors and good for the London Stock Exchange.
