Marketing corporate debt directly to retail investors, a well-established practice in the United States, is just getting started in the UK. The market effectively opened in 2010 when the London Stock Exchange launched its Order book for Retail Bonds (ORB), a service via which retail bonds can be traded in denominations of 1,000 pounds. After raising only 230 million pounds in its initial year, the market showed dramatic growth in 2011 with total issuance of more than 1.2 billion pounds. So far 2012 hasn’t quite matched this pace; as of the end of August, the UK market had raised 635 million pounds, bringing total issuance since the market opened to over 2 billion pounds.
“This year has begun a little slower than expected,” says Toby Croasdell, director of the medium-term note syndicate at Barclays in London. “Especially as yields have compressed, a number of potential borrowers have been sidelined. But in the last few months, we have started to see the increase in breadth of issuers which the investor community has been keen for. This has been led by new names, many of whom have been mid-cap companies rather than the big FTSE 100 names.”
While Cooper was expecting the size of the deal to fall within the 50-million to 100-million-pound range typical of the market, demand greatly exceeded his expectations. The original issuance raised 260 million pounds and was followed by two further taps that brought the size of the deal to 282.5 million pounds.
Croasdell says that in addition to diversification of funding sources, issuers are attracted by the name recognition or PR benefits that retail bond issuance can provide. “As with equities, investing in a company gives investors a certain buy-in to the company and the brand,” he says. “If you own a bond from a company, there’s a much higher chance that you will buy their products or services.” Aside from the National Grid deal, other notable issuers include ICAP, which saw its 50-million pound retail bond close a week early in July, and Tesco Bank, which has issued three retail bonds to date, the latest of which was a 200-million pound, 8.5-year bond launched in May.