Severn’s bond move to raise cash

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Severn Trent dipped its toe into the retail bond market yesterday as it became the first water company to tap private investors for cash.

The group, which supplies eight million customers across the Midlands and the heart of England, is hoping to raise up to £100m with the launch of a 10-year retail bond linked to inflation.

Severn Trent has a five-year investment programme worth £2.5bn to finance and is hoping to diversify its sources of funding by capitalising on demand from ordinary investors for inflation linked products.

It represents a growing trend among firms to use retail bonds as an alternative to the traditional institutional investor market.

Tesco Bank has launched three well-received retail bonds, while luxury boutique hotel booking company Mr & Mrs Smith also announced in April it was seeking to raise cash from the retail market with a fixed rate bond.

Debt advisory partner Clive Gibbard at KPMG, which advised Severn Trent on its bond, said firms were using retail bonds as alternative funding sources at a time when banks were reining in their lending.

He said: “We expect more companies will follow Severn Trent’s lead and the market will continue to grow.

“The range of borrowers in the market will widen into new sectors and this will provide important alternative funding options for borrowers.”

Severn Trent will pay interest semi-annually at a ‘real’ rate of interest set at 1.3 per cent a year.