Utilities group Severn Trent has become the first UK water company to target retail investors with a bond issue.
The group announced on 21 June that it is launching a 10-year index linked retail bond, which will pay interest semi-annually at a real rate of interest of 1.3% per annum adjusted to take account of changes in the level of the UK retail prices index (RPI). They will be listed in London and offered in denominations of £100 (US$156).
“With a large, inflation-linked, investment-driven, regulated water utility at the heart of our group, we are well suited for this product,” the group’s chief financial officer (CFO) Mike McKeon said in a statement.
Clive Gibbard, debt advisory partner at KPMG who advised Severn Trent on the bond, said: “We have seen a large rise in the number of our corporate clients looking to explore retail bonds as an alternative to traditional borrowing. Severn Trent’s issue demonstrates the development of the market and its emerging role as an important element of a diversified funding programme for borrowers.
“The retail bond market has different characteristics to the institutional market and its continued development is a positive for all borrowers. We expect more companies will follow Severn Trent’s lead and the market will continue to grow. The range of borrowers in the market will widen into new sectors and this will provide important alternative funding options for borrowers, especially as the bank debt markets look likely to remain under some stress in the future,” added Gibbard. “Name recognition and brand awareness are important factors and Severn Trent has capitalised on this but, as the market continues to mature, we do expect that the range of borrowers that can access retail funding will broaden materially.”
The country is expected to survive the review, which it must do to retain its place in the European Central Bank’s asset purchase programme.
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.
The Middle East oil producer’s debut global bond issue surpassed the total of US$16.5bn raised by Argentina when it tapped the market earlier this year.
The group reports that currency fluctuations were less of a challenge to multinationals in the second quarter of 2016, but Brexit has since spelt a return to volatility.