St Modwen Properties became the fourth property company to turn to the retail bond market to raise debt capital this month. St Modwen and advisers Investec Bank and Numis Securities aim to raise £50m-£100m and have priced the seven-year, unsecured bond at 6.25%.
Mid-cap property companies have been attracted to the new market by the opportunity to diversify their funding sources and gain relatively longer-term, unsecured finance with no amortisation, even if the cost is higher than bank debt.
Other property companies, including Quintain, are believed to be considering issues. St Modwen chief executive Bill Oliver said the main purpose of the issue was to replace about 15%-20% of the company’s existing seven bank facilities.
“This is not about increasing debt, it is about replacing bank debt across the board. We want to remove the theoretical risk that banks won’t be there [in future]”, he said. The 6.25% coupon is higher than the 5.375% for the first property company issue, by Primary Healthcare Properties in July; CLS Holdings’ 5.5%; and Workspace’s 6% last month.
But Oliver said this was not because of the nature of St Modwen’s business; it specialises in regeneration and managing schemes through the planning and development process, as well as owning a £1.1bn UK property portfolio.
“This is a new and evolving market and PHP and CLS had a first-strike advantage,” he said. “Also, this product is directly linked to the financial markets and gilts have moved up since [earlier property company issues], by about 20 basis points. It will depend on investors’ appetite and competition at the time.” The London Stock Exchange has also simultaneously launched a retail bond and aims to raise more than £150m.