It’s a simple enough question: what are retail bonds and mini-bonds? But, the answer is complicated.
The London Stock Exchange was kind enough to provide the text for the explanation. But before I go into those details, here are some important statistics and facts:
- Launched in February 2010, £4 billion has been raised on ORB (Orderbook for Retail Bonds) through 41 dedicated retail bonds (further details available via the LSE website, here. Take a look at the list of companies that have raised money and you’ll recognise many of them, water companies, BT, Barclays, HSBC and
- even the London Stock Exchange itself.
- It’s a popular route for companies seeking alternative sources of funding.
- ORB offers retail investors easy and transparent access to an attractive asset class
- Currently, there are 170 bonds available for trading on ORB from an increasingly diversified range of companies (full list available via the LSE website, here.
- The majority of bonds are available in denominations of around £1,000, although many are tradable in denominations of £100 and some in denominations as low as £1.
- All these bonds are exempt from stamp duty.
Retail bonds
Listed retail bonds are quoted on London Stock Exchange’s Order book for Retail Bonds (ORB) market. They require a full prospectus and issuers are required to publish detailed financial statements using IFRS standards; this means that investors are protected by the highest standards of transparency and regulatory disclosure.
These bonds are tradable in the secondary market, meaning that investors are not locked in to their investment and have the possibility of realising capital gains if the value of the bond increases prior to maturity.
Investors can buy and sell listed retail bonds at any time throughout the life of the bonds.
As London Stock Exchange offers transparent, continuous two-way pricing throughout the trading day with committed market makers quoting prices for ORB bonds, it means that investors can therefore easily monitor the value of their listed retail bond holdings.
Taxation
Listed retail bonds that at the time of buying have at least 5 years of outstanding maturity, are eligible to be held in ISAs and SIPPs and can therefore be tax efficient.
Mini-bonds
These are often (and confusingly) referred to as retail bonds, but are most commonly known as mini-bonds or loyalty bonds. They are financial promotions offered by companies directly to investors. They are not part of the wider corporate bond market and therefore mini-bond coupon rates do not benefit from the pricing competition offered by listed bonds issued through the public markets.
Issuing this type of bond does not require a prospectus and issuing companies are not required to publish financial statements. Instead, mini-bonds are offered with a brief summary marketing brochure only and are not subject to any continuing financial disclosure obligations such as those required for listed retail bonds.
Mini-bonds are non-tradable which means investors are locked in until maturity and cannot benefit from any trading opportunities or liquidate their holdings in the secondary market
Unlike listed retail bonds, mini-bonds are not eligible for inclusion in ISAs or SIPPs
The Telegraph, here, provided perhaps a simpler explanation about these bonds saying that investors wanting a steady income plus a good chance of avoiding capital losses have had a new option in recent years: the “retail bond”. Most of the £4bn raised in the last four years has come from individual savers, thanks in the main to the interest rates the bonds pay – this is much higher than is paid by a bank or building society. Some bonds pay as much as 7% a year.
The Telegraph article adds: “The success of retail bonds has spawned another, similar investment, the “mini-bond”, which in some cases can pay even higher rates of interest, before promising to return your original investment in full.”
The small print
The article represents my views and understanding of the asset class described and does not constitute investment or financial advice. The contents of this article is intended for general information purposes only. I do not give investment or financial advice. Please note it is important that investors choose investments based on their own investment objectives and attitude to risk and at all times, they should seek advice from a suitably qualified adviser.
Acknowledgement:
I acknowledge the assistance provided by Lucie Holloway, Senior Press Officer, London Stock Exchange Group, Telephone +44 (0)20 7797 1222
Mobile +44 (0)7837 225 859, Email: lholloway@lseg.com, Address: 10 Paternoster Square, London, EC4M 7LS, Web: www.lseg.com
He has written over 700 business publications (see Glossaries at https://onesmartplace.com/resources/glossaries/) and is editor of Better Business Focus (see https://onesmartplace.com/resources/better-business-focus-magazine). His Blog, on a wide range of subjects can be found at: https://onesmartplace.com/blog/
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