The new UK retail bond market
The first 100 days
The London Stock exchange launched its new UK retail bond market on 1st February this year, offering a potential new source of finance for UK mid-cap corporates. 11th May will see the 100 day anniversary of the new market. If you would like to learn more about what it is doing for British corporate finance please contact one of the team.
Lawyers William Belcher, Robert Fenner, Tim Stocks
How does the ORB work?
The new retail bond exchange – the 'ORB – is a dedicated electronic trading platform for 'retail' bonds, being bonds with minimum denominations under £10,000. The trading day starts with an initial opening auction phase running from 08:00 to 08:45, followed by continuous trading until 16:30 market close.
Dedicated market makers commit to quote two-way prices in a range of bonds throughout the trading day. All trades settle in CREST.
What is required in order to list?
Bonds must be admitted to trading on the Gilt Edged and Fixed Interest Market (that is, the Main Market) so a full prospectus, approved by the UK Listing Authority, is required. Bonds must be issued in Sterling. There is no minimum rating requirement. Minimum issue size is £200,000.
What sorts of corporate bonds are trading now?
More than 20 corporate bonds are now trading on the ORB. All are established, rated issuers such as British Telecommunications plc, Unilever plc and Tesco plc.
Three initial offerings of bonds to UK retail investors have been made on the ORB since it opened. The Royal Bank of Scotland plc (rated A by S&P, A1 by Moody's and AA- by Fitch Ratings) have offered a 5.1% 10-year £50m bond; Provident Financial plc (rated BBB+ by Fitch Ratings) have offered a 7% 10-year £75m bond; and Lloyds TSB (rated A by S&P, A1 by Moody's, AA- by Fitch Ratings and A (high) by DBRS) have offered a 5.375% 5-year £75m bond. Minimum denominations were £100, £1 and £100 respectively.
What about unrated UK mid-cap corporates?
HM Treasury want to see UK mid-caps have access to the bond markets. The LSE have stated they want to see UK mid-cap bonds trading on the ORB. We think UK bank balance sheet capacity will be constrained for the foreseeable future.
This is new territory but our view is that UK mid-caps:
- should examine the new UK retail bond market closely as a substitute for bank finance
- would not necessarily need to obtain a rating
- should be sceptical of suggestions that they have to follow the 'high-yield template'
Why don't we discuss?
To discuss further, please see contacts above.
