St Modwen in launch of retail bond to avoid debt

ST MODWEN Properties, the listed regeneration specialist, has launched its first retail bond in an effort to diversify its funding base without taking on more debt.

The bond is aimed at private investors rather than institutions and is likely to raise between £50m and £100m for the FTSE-250 business.

Bill Oliver, chief executive, told the Yorkshire Post that retail bonds are “an emerging market” for companies like St Modwen.

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“We are a mid-cap company with a market capitalisation of £400m.

“But the traditional sources of diversification away from bank finance have not been available –things like corporate bonds, institutional placements and the sorts of things that require a rating.

“We like most companies in the country have been looking at diversification ever since the bank crisis began. Having a product which is providing an alternative and longer term than you get from the bank is obviously most welcome.

“We are not raising more debt. We are just replacing a percentage of bank debt with the retail bond,” he said.

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St Modwen, based in Birmingham, has a property portfolio of £1.1bn with loan-to-value ratio of 41 per cent.

Mr Oliver added: “St Modwen is a very stable and growing business. We have been listed for 25 years and have a long track record of delivery. Our balance sheet net worth is £500m.”

The company is active in Yorkshire and the surrounding region; it is working on a design and build construction project to deliver a £20m new state-of-the-art office and service facility for Siemens in Lincoln, as well as a number of projects in Doncaster and Sheffield.

Mr Oliver said the company’s industrial assets in Yorkshire are trading “pretty well” with “quite high” occupancy levels.

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“We offer a cost-effective level of rent that’s been quite attractive to occupiers in this recessionary period,” he added.

“Generally, what we are seeing across the UK is a limited amount of confidence for new properties to be commenced. But there are some. We are building several food supermarkets at the moment and doing quite a lot of residential.

“Residential certainly seems to be the most buoyant sector in the market. We are pursuing planning permissions for residential site and building houses under our own name and we have a joint venture with Persimmon.”

Mr Oliver said: “One third of our portfolio is within the M25. London is a different market to the rest of the UK and it’s faring better during the recession.”

The bonds will pay a fixed rate of interest of 6.25 per cent per annum, payable twice yearly in May and November.

Retail bonds are becoming a popular fundraising method for corporates.