30th Jun

Charity Retail Bonds Launch on ORB

Golden Lane Housing, a division of Mencap that specialises in renting accommodation to people with learning disabilities is looking to borrow money from savers by issuing a seven-year retail bond and promising an annual return of 4.375%. 

Listed on ORB, the bond is the first of a new breed of Charity Retail Bonds that are tradeable in the secondary market and Golden Lane Housing is hoping to raise £11million to invest in 30 more homes. 

Established in 1998 by Mencap, Golden Lane has spent £83million on buying and adapting properties and its portfolio includes 400 freehold and long leasehold properties, and a further 275 properties on shorter leases from landlords. Its main source of income is rent from its 1,300 tenants for their accommodation, plus landlord services such as maintenance and making bespoke adaptations. 

Director Alastair Graham says: 'The houses and bungalows purchased from the proceeds of the bond will provide a positive and lasting legacy for people as well as future generations with a learning disability. Tenants typically rely on housing benefit to help them meet their rent obligations. Most tenants opt to have their benefit paid directly to the charity by the relevant local authority.' 

As with other retail bonds the investor relies upon the borrower remaining solvent to repay the debt and has no recourse to the Financial Services Compensation Scheme if the worst happens. 

However, huge demand for retail bonds has pushed up prices to leave thousands of savers with realisable  profits should they wish to sell and even at a little under 4.4% the return on this bond compares favourably with savings rates available on the high street. 

Those that have done their research and decided that they are comfortable with the risk of investing in Golden Lane Housing can do so with a minimum investment of £500 up until the deadline at noon on 23rd July although recent experience shows that popular retail bond offers often close early. 

This will be the first charity to list a retail bond on Orb, but more are expected to follow after the creation of a company called Retail Charity Bonds plc, which plans to enable more good causes to raise debt this way in future. 

The varying interest rates on retail bonds reflect the amount of risk attached to them - generally speaking, the higher the rate on offer, the higher the risk – and it is important that the inclusion of the word ‘charity’ does not colour the judgement of anyone looking to invest; these products are an investment like any other and should be assessed accordingly. 

The financial strength of a charity issuing retail bonds should be researched, just as with any group trying to borrow money and it is reasonable to draw parallels with issuers such as A2Dominion Group (A2D) a housing association that raised £150 million to build housing stock. 

Golden Lane wants to expand its property portfolio and investors will have to make a judgment call on the level of risk carried by a charity investing in property, and how far this differs from risk attached to a commercial operator doing the same. 

Notwithstanding prevailing market conditions Mencap has set the coupon at 4.375% -  a level they think is likely to attract investment – whereas A2D offered 4.75%; the question therefore is would an investment in a charity seeking to build property be less risky than a corporate fulfilling its primary function? 

A factor may be the level of dependence each has upon government benefits to achieve its revenue; if A2D attracts a combination of benefit and private capital it could be argued to be a less risky investment than one more vulnerable to the vagaries of ‘austerity Britain’ – although that would be just one of a number of factors to consider.

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