As mini-bonds issuer Providence Financial goes bust taking
£10m of income seekers hard-earned with it, Retail Bond Expert’s Mr Bond
explains the importance of its listing venue when considering a bond as an investment.
As regular readers will know, I have becoming increasingly
concerned by the state of the retail bond market and the issues that are being
brought to market. So much so I will quote you Mark Twain, "It's not
return on my money I'm interested in, it's return of my money".
No sooner had I written this than another mini-bond being
issue landed on my desk, this time its 10% per annum; please refer to Mark
Twain!
Now I have nothing against mini-bonds per se, after all who
wouldn’t buy one issued by John Lewis?
However, why would anyone buy an unregulated investment from
a company they may have never heard of, which will have no valuations for the
term of the investment, and no secondary market?
Furthermore, why do issuers choose this route? It can
actually cost more in percentage terms given the modest amount they are
raising. Is it to avoid the rules required to list a bond?
I have written several articles on this subject in recent
months:
‘Investors Sweat as Mini-bond Issuer Goes Bust’ – DIY Investor
9th September 2016
‘Are Some Bond Issues Equities Masquerading as Debt?’ – DIY Investor
1st September 2016
‘All Bonds are not Born Equal…….’ 22nd July 2016
In each of these I have highlighted several points, and now
I am pointing my (gold) finger at the listing.
First, if it isn’t listed it likely best avoided; period.
Secondly if it is listed, where? The major listing venues
within the EU are Luxembourg, Frankfurt, London (LSE), Milan, Paris, and Dublin
(Main Market).
Of these for the UK investor I say ‘buy British and list on
the LSE’
Why? It’s simple the ‘gold standard’ in Europe for bond
investors is the prospectus directive (‘PD’), which is covered in ‘All Bonds
are not Born Equal...’
Essentially, it is the highest level of authorisation, and therefore
the hardest to attain.
Why do I recommend the London listing? Simple, most of you
trade through execution-only venues who, usually, only deal with UK listed
securities.
In short, if you are buying a retail bond, look for the
listing: if it’s the London Stock Exchange’s Order Book for Retail Bonds (‘ORB’)
it’s worth a second look, if not walk on by……………
At this point we can hear the cries, ‘there aren’t any new
issues’ and you are right, there hasn’t been one since April.
Because of this I have decided to look at other options for
you yield hungry investors, but with the same listing requirements; introducing
Preference Shares.
Listed on the main market of the London Stock Exchange, ‘prefs’
are a hybrid between equities and bonds which typically pay a twice yearly fixed
dividend – akin to a coupon; in some
cases the be index linked which
guarantees a level of income for the duration of the investment.
RBE’s Miss ‘just call me’ Moneypenny, will be commenting on
specific issues in future articles.
However, as an entree Moneypenny suggests you refer to the
following article first published in August…..
‘The Quest for Income in a Low-interest Economy: Preference Shares’ – DIY Investor 11th August 2016