If ever you needed proof that investors think we are stuck in a low rate environment for the foreseeable future ponder the strange tale of Dolphin Squares retail bond. Only yesterday this was announced through various retail platforms including Hargreaves Lansdown.
One day later – today, Thursday – its gone. £45m in bonds sold in a record 24 hours. I realise event tickets sometimes sell out in a few minutes and the occasional high-end property a few years ago might vanish off the market in a few years but one day for a retail bond sounds crazy. It also poses the question whether this was ever really available properly to retail investors. My guess is that most ordinary punters would have seen this, thought “that sounds interesting” and then hey presto….vanished. My other guess is that it was all snapped up by wealth advisers.
And I can sort of see why. Using the LSEs Orb platform, the bonds offered 4.25% per annum through to 2026, with interest paid semi-annually. The issuer was Peel Hunt through the Retail Charity Bonds outfit – in effect, this is acts as an intermediary borrowing the money and then lending on to this housing charity.
The recipient Dolphin Square Charitable Foundation was with £125m a few years back from the sale of Dolphin Square. It’s slowly built up and currently has a portfolio of property types : 96 at market rent, 460 at intermediate rents (usually around 53% of market rents) and 46 regulated, affordable and social housing units. A total of 196 new units is under development costing £86m including the New Era development in Hoxton.
Total net assets – actually reserves – are running at £148m and existing drawn down debts seem to total £69m ( with a weighted average cost running at 3.53% per annum). So plenty of assets to back up that £45m bond issuance and income also seems fairly stable with occupancy at 98% and defaults at 1.8%.
Quite why the charity needs to raise money at 4.25% for the next nine years when existing institutional lines cost so much less, is beyond me but investors sound like they loved it. The bond closed 24 hours later. My guess is that the bonds will now trade at a premium.
A broader observation. Despite the appalling events at Grenfell Towers we need more social housing in London. Charities and housing associations will be absolutely essential in helping fill this gap and they need proper financing. This retail bond shows that the right housing providers can still access the capital markets. The fear is that an incoming socialist Labour government turns its back on the private sector and insists of nationalising all social housing. Bad mistake. Just because Kensington and Chelsea were caught doesn’t mean we should adopt a Stalinist command and control development model. State intervention is crucial but it needs to be locally specific with control decentralised.