Golden Lane Housing, the housing arm of disability charity Mencap, has launched the first charity bond to be listed on the London Stock Exchange through a new service.
The charity is hoping to raise £11m which it will spend on building 30 homes for more than 100 people with learning disabilities.
A bond is a debt agreement where the issuer agrees to pay a fixed rate of interest each year for a given period. At the end of that period the issuer repays the capital. The Golden Lane Housing bond will pay 4.375 per cent interest, over seven years.
The offer is open until 23 July.
Bonds will be able to be bought and sold at any time through the LSE’s Order Book for Retail Bonds, known as Orb. Ordinary individuals will be able to buy shares for as little as £500.
Several operational charities, including Golden Lane Housing, have issued bonds before to buy housing, pay for assets, or build charity shops. However previous charity bonds have not been listed, and have not been tradeable, making them potentially much less attractive to investors.
The bond is the first to be launched through Retail Charity Bonds, a plc which exists to issue bonds on the LSE on behalf of charities.
The plc has an independent board but no employees, and is administered under licence by Allia, a charitable community benefit society which specialises in issuing bonds on behalf of charities, who were responsible for setting it up.
A number of other large charities are believed to be in negotiation with the company to launch bonds.
Alastair Graham, director of Golden Lane Housing, said his charity had previously issued a £10m bond and used it to buy 27 properties, and that this had worked extremely well.
“This service is better for us because there’s more liquidity and it can fit into an ISA,” he said. “The last bond we issued actually paid a lower interest rate, but that went largely to the social finance market. This is a much more straightforward commercial proposition.”
Graham said bond funding was a much better method than a bank loan because it did not require a cash deposit, and could be used to fund all the cost of buying a property.
“We have great certainty of income,” he said. “Over the course of the bond we’ll build up a cash deposit and use that to refinance with a loan at the end of the seven years.
“Or, depending on the market, we might refinance with another bond.”
