Places for People launches inflation-linked bond
The bond will pay an annual coupon of 1% adjusted to take into account changes in the Retail Prices Index (RPI). The inflation-adjusted coupon value will be calculated using the RPI value eight months before each interest payment is due, and interest will be paid twice a year.
The capital value of the bond will also be uprated in line with the RPI, which had a reading of 5.2% in November. This means that at the end of the 10-year term, investors will get back the capital value of the bond plus any increases in RPI over the 10 years.
If the RPI has fallen on the maturity date, Places for People will pay back the bonds at their face value.
The bond has a minimum investment of £2,000, and can be bought in multiples of £100 thereafter through stockbrokers and wealth managers.
The offer period for the bonds will close on 25 January, or earlier if demand is high. They will begin trading on the London Stock Exchange's Order Book for Retail Bonds (ORB) on 31 January.
Last May, Places for People launched a fixed-rate bond with a coupon value of 5%, raising £140 million.
Places for People is a UK property management, development and regeneration group, made up of 13 companies including four housing associations.
This article was written for our sister website Money Observer
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.