Severn Trent issues index-linked retail bond, in industry first

Severn Trent has launched an RPI-linked 10-year bond available to retail investors, in what the company claimed is a first for the industry.

Unlike its traditional offerings to institutional investors, Severn Trent’s latest bond will be open to any UK resident to buy. It offers a real rate of interest of 1.3 per cent and repayment on maturity of the face value adjusted according to any increase in the RPI.

Severn Trent said the bond, due to be issued on 11 July 2012, will help diversify its sources of funding and meet demand from retail investors for inflation-linked products.

Mike McKeon, chief financial officer at Severn Trent, said: “We are pleased to be the first water company to issue a retail bond. With a large, inflation-linked, investment-driven, regulated water utility at the heart of our Group, we are well suited for this product.”

Clive Gibbard, debt advisory partner at KPMG who advised Severn Trent on the bond, said he expected more companies to follow suit.

“We have seen a large rise in the number of our corporate clients looking to explore retail bonds as an alternative to traditional borrowing,” he said. “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.

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