Tesco Bank's inflation-linked corporate bond has raised £60 million from private investors in just a week.
The Tesco Bank Retail Price Index (RPI) Bond, which has a maturity date of eight years, pays a bi-annual coupon of 1% adjusted for changes in the inflation index.
The capital value will also be uprated in line with the RPI, which had a reading of 5.2% in November. This means at the end of the eight-year term, investors will get back the capital value of the bond plus any increases in RPI over the term.
It went on sale on 9 December and began trading on the London Stock Exchange's bond platform, the Order Book for Retail Bonds (ORB) on 16 December.
Since launch in 2010, total fundraising on the ORB has reached £1.3 billion, with 153 bonds available for private investors.
The index-linked bond, which was specifically chosen by Tesco to offer inflation protection, follows Tesco Bank's previous 5.2% corporate bond issue in February, which raised £125 million.
Moving from strength to strength
Pietro Poletto, head of fixed income markets at the LSE, says the ORB continues to go from "strength to strength", demonstrating the platform's prominence as an alternative source of funding for bond issuers.
"Providing simple, transparent access, the ORB offers private investors the chance to participate in the corporate bond market and today's listing demonstrates the strong appetite for this type of issue," he says.
Benny Higgins, CEO at Tesco Bank, adds: "Although we are principally funded by retail deposits, the success of our second retail bond, which once again exceeded our target, shows the keen interest of a broad customer base in both Tesco Bank and in the range of savings and investments that we offer."
Intermediate Capital Group (ICG) has also closed its subscription period for its corporate bond paying 7%, raising £35 million. It will begin trading on the LSE on the 21 December.
Investors should remember that corporate bonds are not covered by the Financial Services Compensation Scheme (FSCS). If Tesco Bank or ICG defaulted, the income payments and capital could be at risk.
This article was written for our sister website Money Observer