Retail bond issues are an investment vehicle used by companies to raise extra capital by borrowing from the investor at a fixed rate for a set period. As with any capital raise, companies usually launch retail bonds to expand their business, pay off some debt, or finance a particular project. Typical issues look to raise between £10m and £350m and can offer interest rates as high as 7 per cent, though are typically lower. All this is tempting for investors when even the best savings accounts have been struggling to offer good returns.
The company launches a bond as a debt security, owing the holders a debt, and is obliged to pay them interest or to repay the principal at a later date. Bonds have a fixed life and the end date of the bond is known as the maturity date. Retail bonds can be thought of as an ‘I owe you’, with interest normally payable at fixed intervals. Due dates for interest payments will depend on the details of the bond issue itself and could be semiannual, annual, quarterly or very occasionally paid out on a monthly basis.
Retail bonds differ to mini-bonds as the latter need to be held until expiry some years later (usually between three and five), while the former are normally listed and therefore can be bought and sold during normal market hours, giving investors a greater level of flexibility. They are traded on the Order Book for Retail Bonds, or Orb, which is part of the London Stock Exchange. As they are subject to strict regulation before issue, investors have more opportunity to understand the risks than when they buy mini-bonds. You can keep up to date on latest trading details on the LSE website here. This means that retail bonds are more stringently regulated than mini bonds. SyndicateRoom only works on listed retail bonds.
What are the risks?
As with any investment opportunity, there are risks associated with investing in retail bond issues. There is an opportunity that the company you invest in finds itself in difficulties, in which case there is potential to lose all the money you invested. If you hold onto the bond until maturity, inflation means that the money you receive back is more than likely to be worth less than your original investment. This should however hopefully be mitigated by the interest payments received before the bond reaches maturity.
How to get involved
Retail bonds offer private investors an opportunity to create a diversified portfolio. To get involved in a bond issue, investors will first have to sign up to a platform like SyndicateRoom, which offers them as an investment opportunity.
Previous Issues on SyndicateRoom
Property investment platform LendInvest launched a five year retail bond, offering investors a fixed rate of 5.25 per cent. The Bond is due to reach maturity in August 2022.
Specialist mortgage lender BlueZest is seeking to launch a programme of retail bond offers on the Regulated Market of the London Stock Exchange. The Bonds will bear interest at a fixed rate of 5.25 per cent per annum, with the first payout due on 15th June 2018.