Tesco Bank launches fixed-rate bond paying 5%

Tesco Bank, the retail banking arm of the supermarket giant, has unveiled a fixed-rate bond paying 5%.

The bond, which has a maturity of eight and a half years, is the third corporate bond aimed at retail investors that the bank has launched over the past two years.

At the end of last year, Tesco Bank launched an inflation-linked bond paying the Retail Prices Index plus 1%, which raised £60 million in funding, while the group's 5.2% fixed-rate offering, launched in February 2011, raised £125 million.

This fixed-rate offering, which matures on 21 November 2020, will pay an annual coupon of 5% twice a year, starting from 21 November this year.

The new bond is expected to list on the London Stock Exchange's Order Book for Retail Bonds. It will be available through stockbrokers and wealth managers, and the minimum investment is £2,000.

Funding strategy

Benny Higgins, chief executive of Tesco Bank, comments: "Retail bonds form an important part of our funding strategy as we move towards offering a full retail banking service for Tesco customers."

Applications for the bond open on 2 May, and close on 21 May.

The Tesco Bank bond comes just two days after luxury travel group Mr & Mrs Smith launched a fixed-rate four-year bond paying 7.5%.

Investors should remember that corporate bonds are not covered by the Financial Services Compensation Scheme (FSCS). If Tesco Bank defaulted, the income payments and capital of the bond could be at risk.

This article was written for our sister website Money Observer