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Retail bond market hots up with new 6.25% deal

Intermediate Capital Group (ICG) has launched a new retail bond offering investors a fixed annual rate of 6.25% until 2020.

Retail bond market hots up with new 6.25% deal

Specialist lender ICG has launched a new retail bond paying a fixed annual rate of 6.25%.

The news comes as property investment company CLS reveals it has had to close its new retail bond issue seven days early because of oversubscription.

Terms and conditions

Intermediate Capital Group (ICG) will pay interest twice a year on 19 March and 19 September until the eight-year sterling bond matures in September 2020. The bond can also be held in an ISA (individual savings account) or Sipp (self-invested personal pension), where the return is tax-free.

Investors are required to make a minimum investment of £2,000, but can buy bonds in multiples of £100 thereafter. Once bought investors will be able to trade the bonds on the London Stock Exchange’s Order Book for Retail Bonds (ORB).

The deadline for retail investors is 12 September but the issue could be closed early – as we saw with CLS’s new bond – depending on demand.

This is the second retail bond launched by ICG. At the end of last year it offered investors the chance to earn 7% on a seven-year bond maturing in 2018.

Philip Keller, managing director and chief financial officer of ICG, said the first retail bond delivered a ‘positive performance’ and, given the company’s balance sheet, believes this bond provides ‘an excellent opportunity’ for retail investors.

ICG is looking to raise £50 million from the launch, but could take a little more, said Henrietta Podd of Canaccord Genuity, which has been appointed as lead manager of the bond.

A look at the risks

Investors should, however, bear in mind the risk associated with investing in ICG’s retail bond.

ICG specialises in arranging finance for medium-sized companies, providing direct loans and managing external funds. This is not without risk, and leaves the company very exposed in the event of a stock market crash. ICG also does the bulk of its business in the eurozone, so could be adversely affected if there were a break-up of the eurozone.

However, ICG has been in this business for over two decades, and they know their game, running a diversified portfolio with a strong focus on recovery of assets, said Mark Glowrey of Fixed Income Investor, which specialises in analysing bonds.

The bond is rated BBB- by credit rating agencies Standard & Poor's and Fitch – the investment grade above junk.

In the event that something does go wrong investors should remember that retail bonds are not covered by the Financial Services Compensation Scheme (FSCS).

7 comments so far. Why not have your say?

abbass hassan

Sep 03, 2012 at 19:03

Risky to say the least?

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alistair richardson

Sep 03, 2012 at 21:22

I think the risks are fairly minor myself and what risk there is is compensated for by the chunky yield. However one can get slightly more yield by investing in the equity which is paying 6.66% at the moment and, given a fair wind, will probably have increased to nearer 8 or 9% by the time this bond matures.

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Roger Savage

Sep 03, 2012 at 22:07

Some shares yield this much in dividends alone. At least, even if you do lose some capital, it's not all at risk, as it is here.

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stephen@createwealth via mobile

Sep 03, 2012 at 22:56

Exactly what the day to day Retail client and the majority of Financial Advisers, doesn't need dangling in front of them! The underlying risks should be the headline, no FSCS cover, teetering on junk bond status. To suggest a firm that is 20yrs old can berelied upon is folly! Ask Lehman Bros how long they were around! Stay well clear and let investment managers and fund managers assess and use them as a diversifyer if they see any merit.

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Anonymous 1 needed this 'off the record'

Sep 05, 2012 at 08:35

Ha you'd think people would have learned from Icesave, AIG etc etc.

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Anonymous 1 needed this 'off the record'

Sep 05, 2012 at 08:41

To clarify, it's a binary risk people are taking with something like this. Seeing as risk and return are inextricably linked, you are essentially risking 100% to make 6.25% here. It's not a very asymmetric bet if you ask me.

The crazy thing is that investors will shy away from something that might have more volatility than this but with far less risk of a 100% drawdown and much higher rate of return!

Unfortunately it will never change

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abbass hassan

Sep 05, 2012 at 10:23

well done on your comment.

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