FTSE goes live with retail bonds index

Investec develops indices for growing bond market that has seen spate of recent property issues

A set of indices tracking the performance of retail bonds has been launched by the FTSE in conjunction with the London Stock Exchange and Investec.

The FTSE Order Book for Retail Bonds (ORB) Index Series comprises a main index of all retail bonds and four sub-sector indices tracking financials and non-financials bond performance, plus longer (five-year plus) and shorter maturities.

The relatively new market, which has raised around £1.5bn since its launch in late 2010, was accessed in the second half of last year by five mid-sized property companies: UNITE, St Modwen Properties, Workspace, CLS Holdings and Primary Healthcare Properties.

A sixth issue, by Delancey-owned private schools provider Alpha Plus, was also secured on property.They raised medium-term, unsecured finance at a cost of between 5.375% and 6.25%. Most of the issues have been trading at small premiums or near par since.

Investec said its reasons for developing the index included to enhance the market’s existing transparency, continue its development and position retail bonds as a new asset class.

The bank’s debt capital markets team said: “The indices will enable issuers and investors to see how various retail bond sub-sectors are trading from a relative value perspective.

“Investors will also be able to see how the retail bond market is performing from a total return basis against other asset classes.”

02.13 FTSE p6

St Modwen group finance director Mike Dunn said REITs and property companies had been “retreating from banks fast” and looking to diversify their funding sources. He said that for St Modwen, two advantages of retail bond finance were “that it’s longer term [than bank finance] and it is not a bank.

“We have been degearing and making the company stronger and more profitable, and only recently have these alternative finance sources come into sight.”

There are now 83 issues listed on ORB. The latest book-building is for UK mortgage and consumer finance company Paragon, which is seeking seven-year money at 6%.

Investec said statistics from the Investment Management Association showed that fixed-income products, including retail bonds, were “the asset class of choice” in 2012, for the fifth successive year.

Fixed-income net retail sales were 39% higher than equity, at £5.6bn, compared with £3.4bn of equity.