Water company Severn Trent is targeting retail investors with the launch of a 10-year sterling bond with a coupon linked to the retail prices index.
The bonds will pay interest semi-annually at a real rate of interest of 1.3% per annum adjusted to take account of changes in the level of the UK Retail Prices Index (RPI). The bonds, to be issued at £100 a throw, could, however, end up paying less than 1.3% per year if the UK experiences deflation.
On maturity, the amount due to be repaid will be the full face value of the bonds (£100), adjusted to take account of any overall increase in the RPI. However on maturity, even if there is an overall fall in the RPI, Severn Trent will be required to repay the bonds at no less than their full face value.
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In accessing the retail bond market, Severn Trent is aiming to diversify sources of funding for its 2010-2015 capital investment programme of around £2.5bn.
"We are pleased to be the first water company to issue a retail bond," said Mike McKeon, Chief Financial Officer of Severn Trent.
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