Severn Trent launches RPI-linked inflation proof bond

Written on:June 21, 2012
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Severn Trent Edgbaston office

Severn Trent becomes first water company to launch RPI-linked bond (Image Courtesy: Ell Brown)

Severn Trent becomes the first British water company to launch an RPI-linked 10-year bond that offers retail buyers an inflation proof investment, to help fund its £2.5 billion as part of its 2010-2015 capital investment programme.

The 10-year sterling bond will pay an interest rate of RPI plus 1.3% twice a year. When the bond matures investors will receive no less than the original face value of their bond back plus an additional amount should there be an overall increase in inflation.

“This retail bond issue diversifies our funding sources while also seeking to meet demand from retail investors for inflation linked products”, Mike McKeon, chief financial officer, Severn Trent, said.

The water company is asking for a minimum investment of £2,000, and will accept investments in multiples of £100 thereafter. There is no set maximum investment amount, though Severn Trent said it is looking to have expansive customer base. Severn Trent said it aims to raise between £50 million and £100 million to put towards its £2.5 billion spending plan, although it does not have a set target.

The water utility company has appointed Barclays and Investec as joint lead managers of the bond issue. The two banks have also been mandated to arrange a series of fixed income investor meetings starting June 12.

The last date for retail investors is July 4, while the bonds are expected to be issued on July 11. This date could change depending on how much interest it attracts. Once bought investors will be able to trade the bonds on the London Stock Exchange’s Order book for Retail Bonds (ORB).

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