Severn Trent to target bonds at retail investors

INDIVIDUAL investors will have the chance to buy bonds from FTSE 100 utilities firm Severn Trent, the company announced yesterday.

The company hopes to raise up to £100m from the scheme, which will offer individuals a return of 1.9 per cent above retail price inflation (RPI) over the next 10 years.

“There’s a lot of private investors who have funds in SIPPs and ISAs who will be looking for products to enhance their investment,” Severn Trent’s chief financial officer Mike McKeon told City A.M..

“Our understanding is that a flat coupon rate would have to be at least five per cent and you can get a cheaper flat rate in wholesale. But in an index-linked market we can get better value for the company.”

“Given the majority of our business is RPI-based regulated UK water utility so our group is well-positioned to have index linked products,” he added.

The bonds will be offered for sale until 4 July before trading begins in London on 11 July. The minimum subscription will be £2,000 and they can be bought in £100 units. Barclays and Investec have been appointed joint lead managers of the issue.

Severn Trent is the fourth UK company to turn to retail-focused all-in-one bond issuing platforms to meet its capital funding needs, meeting demand from investors who have fled weak Eurozone countries.

Other firms to offer similar products include Tesco, National Grid and John Lewis. But retail bond investors are not covered by the same compensation schemes that apply to savings.

Shares in the firm yesterday closed down 1.6 per cent.