Icap to launch retail bond paying 5.5pc interest

jingleberry

Apparently the announcement is due today. Any thoughts about whether this would be a good investment? Also is anyone aware if this type of investment could normally be purchased through a stocks and shares ISA, and if so, whether the coupon would be paid gross?

LardyCake

Good investment? - no idea
But provided there is more than 5 years left to maturity then any corporate bond can be held in a s&s ISA and will pay gross.

jingleberry

LardyCake wrote: »

Good investment? - no idea
But provided there is more than 5 years left to maturity then any corporate bond can be held in a s&s ISA and will pay gross.

Great news thanks for the info. I think these bonds are for 6 years. I assume that, if held in an ISA initially, they can continue to be held therein (and interest will continue to be paid gross) once the remaining term falls below 5 years?

purch

ICAP is a money broker. They are rated BBB+ negative watch. This Bond no doubt will be unsecured and/or unsubordinated.

I don't think a coupon of 5.5% is enough for this type of instrument, but with the strange appetite there appears to be nowadays for near junk retail Bonds from investors who don't really understand the products, it'll probably be oversubscribed at issue.

wriggly

Just to be absolutely clear, you are being paid 5.5% per annum for a 6 year term, with no compounding of interest. Your money is not covered by the FSCS compensation scheme if ICAP cannot pay it back.

Compared to 4.2%, the highest 5-year FSCS covered bond, you are getting more interest, but:
- it does not compound
- If ICAP become bankrupt over the next 6 years, you may not get all your initial investment returned. This is why you should be concerned that ICAP's rating is BBB+ negative watch.

jingleberry

wriggly wrote: »

Just to be absolutely clear, you are being paid 5.5% per annum for a 6 year term, with no compounding of interest. Your money is not covered by the FSCS compensation scheme if ICAP cannot pay it back.

Compared to 4.2%, the highest 5-year FSCS covered bond, you are getting more interest, but:
- it does not compound
- If ICAP become bankrupt over the next 6 years, you may not get all your initial investment returned. This is why you should be concerned that ICAP's rating is BBB+ negative watch.

Ah I hadnt realised that profit was not compounded - so the 'real' rate of interest (for the purposes of comparing to a fixed rate savings account) is something less than 5.5%. Yes I see your point - the extra interest from this investment is not enough to pay for the extra risk arising from the fact that capital is not secure. These retail bonds seem to come up regularly - I guess I'll wait for a better deal.

grey_gym_sock

the 5.5% is (presumably) paid out as you go along (probably 2.75% every 6 months). so, while you can't get compound interest at 5.5% from ICAP, you can get interest on your interest by putting it in a savings account or some other investment - though this may not be at 5.5%. i'd say the bond's effective rate is 5.5% (or slightly higher if it pays 6-monthly, not annually). though you should note that compound interest is at whatever rate you can get at the time, not 5.5%.

but i would agree that 5.5% is not nearly higher enough a rate for the risk level.

gadgetmind

I'd want much more yield to take a risk on ICAP.

You can get close to 10% yield via various prefs in banks with A ratings and HMG as majority shareholder.

pqrdef

gadgetmind wrote: »

You can get close to 10% yield via various prefs in banks with A ratings and HMG as majority shareholder.

You might. Or you might get a Chancellor or Governor or regulator or Chairman or CEO who doesn't understand why a bankrupt institution is paying anything at all on prefs when it's supposed to be building up capital ratios. The directors have prefs? But it's open season on banks now, the political cover is blown, thanks to Liborgate.

And you might be able to sell them, but there's no telling what you'll get. It doesn't take much of a hit on the price to wipe out the extra "yield" - though yield is a bogus term to apply to shares when compared with the redemption yield on bonds.

Totally different game really.

gadgetmind

pqrdef wrote: »

And you might be able to sell them, but there's no telling what you'll get.

As I bought most of them when the divis were blocked, I know roughly what I'd get. However, as not paying the prefs puts a blocker on divis on the ordinaries, this is unlikely to happen. HMG will be rather keen to see the price of their holdings rise, which requires the perception of risk to be reduced and dividends to resume.

It doesn't take much of a hit on the price to wipe out the extra "yield"

I'm reasonably confident that we'll see prices rise 30% from here and I'm already up about 40% even without including the dividends.

Yes, they aren't bonds, but I also hold some bonds for diversity and am starting to sniff around at some perpetual FRNs.

afwone

purch wrote: »

I don't think a coupon of 5.5% is enough for this type of instrument, but with the strange appetite there appears to be nowadays for near junk retail Bonds from investors who don't really understand the products, it'll probably be oversubscribed at issue.

I am begining to acquire this strange appetite of which you write. I don't fully understand these products, but having taken the decision to transfer my cash ISA to an S&S ISA, I would see having a little collection of them as more satisfying than forever chasing after paltry interest rates.

The question in my mind is how to get them into my ISA at launch rather than buying them in at a premium afterwards. iii have offered the occasional new bond issue (if not this one), but as far as I can see X-O (to whom I am transferring) do not handle these things.