General Bond Discussion
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Select Property Group Finance plc announces 6.00% retail bond due to mature in 2023
I am beginning to think ORB stands for obviously really bad. This group's shareholders equity is about 4% of its assets. Its previous borrowings have all been secured on properties however the ORB bond is completely unsecured. Not much track record profit wise. It is possible this might go to an initial premium as there seems to be a demand for bonds, however the risks are considerable. I would love to know what others think, and of course these are just my personal opinions.
My first reaction was the same as Gliderpilot but after doing a little research I could see the people behind the company are pretty respectable/experienced. That said I have come to the conclusion with regard to my Sipp that it is time to select some good quality companies with decent yields and go in that direction. Getting sub 5% on a bond issued by Wasps certainly doesn't feel safer even with the stadium as backing.
The high coupon for what is a short maturity indicates that they cannot get bank funding, despite willing to pay up. So not for me, too much risk as to loss of capital or compulsory refinancing in a couple of years. This is at present a dangerous market if one looks to get 5% plus yields- junk issuers hoodwinking analysts, hazy balance sheets, weak covenants and all too soon illiquidity. Check what happened in Germany with "Mittelstandsanleihen" of similar ilk offering tempting coupons- a large part went bust over the past five years.
There is little doubt that the quality of companies using the ORB market to secure funding has greatly diminished since 2012. At one time most of the issuers were listed companies with share valuations greater than half a billion. After reading the Select Property 2016 accounts, the risks are not compensated by the coupon.
Critical figure is the negative "retained Earnings of £13,898" ('000)
The business seems too complex and with too many trading subsidiaries
I'm afraid not for my pension scheme
Not for me, way tooo risky.
I used to hold shares in Empiric Student Properties (ESP), which rents out up-market student accommodation. It went to a significant premium to NAV and luckily I sold. Now the price is drifting down because the prospect of covering its dividend from profits is constantly fading further into the distance. There is clearly good demand and an opportunity in student accommodation and the private rented sector but that does not guarantee profits. It is easy to be attracted by what appears to be a growing market and not give proper scrutiny to the enterprise itself.
Sometimes I wonder if there isn't a bit of 'groupthink' on this forum whereby there is a tendency to reinforce one view or another. While I read all the comments above - and accept them for what they are, I have applied for some of these. Why? Because while all the above are to be taken on board, I take comfort from the fact that the CEO, Mark Stott, is the controlling shareholder and, hence, has a huge interest in ensuring the group's success. He has 77% of the ordinaries. So he has a lot more to lose that the few thousands I am putting at risk. I am happy with his track record so far and am happy to entrust a liitle bit of my funds into his care.
He does indeed have 77% of the ordinaries. And now, because you've subscribed, he will be using that money, rather than his own cash, as the equity in all of the speculative projects they have lined up. So in one fell swoop, you have reduced any financial risk that he ought to bear and reduced the cost of his debt capital too. Oh, and the debt funding into those speculative projects ranks ahead of you too and just about every other claimant in the event that it all goes wrong.
It is the equity that all these developers can't find, don't have or won't pay for - coz it's too risky and or too expensive. He should send you a big bunch of flowers to say thanks.
The Telegraph published a negative article on this, don't want to deny them their ad revenue, just google it.
That's a bit harsh SMU. Maybe that Mr Stott's risk is reduced but in the meantime bond holders get a juicy return and if it all goes wrong they get their money back before he sees a penny from his shares. This one is not for me but Dandigirl makes a legitimate point that there is plenty of skin in the game from management.
I would think if it all goes wrong both the equity holders and bond holders will get nothing.
it looks like this was cancelled, no sign of this bond anywhere.
Not cancelled, I am told. They are working on a "sizing" announcement.
Just been pulled - size is zero! - "Speculation about interest rate volatility and market uncertainty during the offer period influenced investor sentiment and demand. The Company has, therefore, decided not to proceed with the proposed bond issue at this time"
It’s a shame for all concerned when a launch is cancelled, but picking up on Gliderpilots’ definition of ORB.....
Being London Listed is not an endorsement of a product, but it does mean the issue is transparent and consistent, and Select is not the first issue to have failed to gain sufficient transaction. In general if an issuer is unlisted, the guarantee is weak, and perhaps the issue is unsecured, such offers have not given investors sufficient comfort in increasingly uncertain times.
Away from ORB, and often worryingly, many unlisted “mini bonds” are sold quite successfully, backed by high budgets for slick marketing, glossy brochures, videos and seemingly generous returns. The retail buyers are not careless or negligent when subscribing to these bonds, but many are not experts either. They consider mini bonds because well intended regulations actually prevent them from buying the bonds that professional investors have access to.
In order to become admitted to the ORB, and therefore approved by the UKLA, the disclosure is thorough and scrutinised by a wider audience, many of whom are professionals, and the earlier comments on this blog seem to bear witness to those points.
Demand from retail remains strong and the ORB remains an important launchpad for good products that might not otherwise be open to retail savers. I, for one, hope we see more offers for investors to consider on their merits at the time.
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