International Finance
IdeasMagazineMarch-April 2019

Retail Bonds: A Return with a difference

Retail Bonds: A Return with a difference
Daniel Terry, CEO of IntaCapital Swiss, provides bespoke solutions for complex financial situations, looks at past retail bonds investments, current opportunities and risks involved with investing in them.

Bonds have always been an investment opportunity for those who are looking for a long term, high return option with recent market forces. However, it is retail bonds that seemed to have captured the imagination of those wanting a return with the difference.

From beer to chocolate to education to sport, there is a retail bond option available. Many investors already know the return on investing in bonds in companies such as John Lewis where there is a good cash flow from their investment in the £50 million scheme that offers up to £10,000 per investor for a return of 4.5% annual dividend and a further two percent in John Lewis or Waitrose vouchers.

High street retailer Tesco followed suit and exceeded expectations with a massive £125 million against its target of £50 million to £100 million. After this, The University of Cambridge is offering a historic bond in October 2012 that rose over £1.5 billion to help research and accommodation at the University. With a 40 year maturity and a 3.75% payback over its life, the bond that was initially set out to raise £350 million was massively oversubscribed with everyone wanting their “little bit of history.”

Next, we saw gourmet chocolate retailer Hotel Chocolat announce a second issue of its retail bond in 2014, with returns paid out to investors in chocolate instead of cash. With the aim to raise a further £10 million in development capital from its first issuance that raised £5 million, returns were made through a Hotel Chocolat card or monthly box of chocolates rather than cash.

Also The Jockey Club launched its first ever retail bond that raised £24.7 million last May for the redevelopment of Cheltenham racecourse.  With a lower maturity period of five years, it paid 7.75% per year return on investment, split between 4.75% in cash and 3% in “Rewards4Racing” loyalty points that could be redeemed at 15 racecourses nationwide on a refreshments, hospitality and membership fees.

At IntaCapital Swiss we are still seeing retail bonds being a popular option for investors globally. However, we believe there are a number of points to consider before deciding if they will be the right choice of investment.

Daniel Terry
Daniel Terry
Senior Financier, Intacapital Swiss

Retail bonds can be a good addition to an investor’s portfolio, especially for those who have funds that they want long term returns on, rather than a quick cash machine. Therefore investors should ensure to take robust advice and use a broker they can trust rather than being attracted by a brand name, its marketing and the appeal of “added value” perks like vouchers or free products.

Do You Understand How do bonds works?

As we have seen in the examples above retail bonds can differ significantly in their benefits and interest. Talking to a professional broker such as IntaCaptial Swiss will help to understand the opportunities and the risks involved.  

How much can investors afford to lose?

As in the case of all investments there is always a risk involved. Many retail bonds are not protected by the Financial Services Compensation scheme. So, if a company was to go off-track, the initial investments will be lost. This is especially important when well-known retailers are struggling to keep themselves in a safe corner.

 How long can investors afford to invest?

Retail bonds tend to range between mid-and-long term investments that can mature in five, ten or even longer years.  It is important for investors to think about their future financial position rather than how their finances are at present.

Is the bond listed?

Retail bonds come in two types:  retail and mini. Retail bonds are listed on London Stock Exchange, and therefore investors can sell the bonds before they mature. Mini bonds cannot be sold on before their maturity, and often offer higher risk, but with higher return.

What should investors know about the company they are investing in?

Even if the company holds a good reputation, it is important to ensure there is a good broker who can undertake responsibilities with due diligence. It is a prerequisite to understand the retailer’s current and future state of affairs.

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