DIY Investor Magazine
/
December 2015
18
The low interest rate environment of recent years
has made the hunt for yield more difficult and as I
highlighted in the last edition of DIY Investor Magazine,
demand from investors for retail bonds has outstripped
supply leaving investors frustrated by the shortage of
issuance.
The London Stock Exchanges’ Order Book for Retail
Bonds (“ORB”) is considered the blue chip listing
because it represents the benchmark for transparency
and disclosure that retail investors should expect and
it has become the listing of choice for the buyers and
distributors of retail bond issues.
This transparency and disclosure comes from the
supporting documents to the issue, specifically the
prospectus and information booklet required by the
exchange. Regulation requires that the prospectus is
the lead document, the information booklet “follows”
and is intended to provide a summary to help retail
investors understand the relevant points, but it must not
be viewed as a substitute for the prospectus.
There are a number of reasons for the lack of issuance
on ORB; one is the perception that the coupon needs
to “start with a 6”, and another is the re-emergence of
the banks in lending to firms that had turned to ORB
as a source of funding. At the same time, the listing
has become harder to attain for new issuers as it is
intended for only the most vanilla bonds.
One of the prime tasks for managers of a bond issue
is successfully distributing the paper. Many of the
traditional investors of retail bonds prefer issue size to
be at least £50m. Whilst this may be small compared
to the institutional bond market, where benchmark size
is at least £200m, it is well in excess of the funding
requirements of many potential issuers, or it is more
than they need from a single issue.
Philip Gilbert,
Head of Fixed Income at Beaufort Securities
Beaufort Securities Limited (“Beaufort”) is typical of
a number of firms who meet potential issuers with
successful businesses whose funding requirements are
deemed “too small”.
These companies have been recognised by Standard
& Poor’s who have created a Mid-Market Evaluation
process that allows them to potentially rate these firms.
Beaufort has been exploring alternative listing venues,
for example the LSE’s Order Book for Fixed Income
Securities (“OFIS”), or the Main Market of ICAP
Securities and Derivatives Exchange (“ISDX”). Both
of these alternatives can enable us to better serve our
clients in issuing public debt which, in turn, should lead
to a greater supply of bonds for investors to consider.
A number of issuers do want larger amounts of funding,
some in excess of £100m, but not all in one go. An
example of this is an issue we are currently managing
for Indian Solar Energy PLC, the Borrower and
Guarantor is Nereus Capital Investments (Singapore)
Private Limited. Their funding requirements over the
next 2-3 years are up to £200m, to provide this they
have established a Medium Term Note (“the Notes”)
Programme
A Programme, unlike a single issue prospectus allows
them to issue notes on an on-going basis without
producing an individual prospectus for each issue.
IS THERE AN ALTERNATIVE FOR INVESTORS
STARVED OF RETAIL BONDS?
THERE IS EXPECTATION THAT THE “NEW NORM”
FOR RATES WILL BE LOWER THAN IN YEARS GONE
