A service to allow charities to issue bonds and list them on the London Stock Exchange has been launched today by specialist charity bond provider Allia.
The bonds will technically be issued by Retail Charity Bonds, a special purpose vehicle set up by Allia, a charitable community benefit society. It will pass on the income to charities, which will be responsible for meeting all the repayments.
A bond is a debt agreement where the issuer agrees to pay a fixed rate of interest each year for an agreed period. At the end of that period the issuer repays the capital. Charities have increasingly used bonds in recent years to buy property, fund the development of charity shops and buy higher-yielding investment assets.
Up until now, most charity bonds have not been listed on a trading exchange because of the cost involved. This means they are not subject to the same regulation and cannot easily be bought and sold by investors. The new specialist vehicle will make it possible to list because it will trade in much larger volumes and will have lower costs.
Retail Charity Bonds is a plc, and is governed by an independent board of non-executive directors from the financial and charity sectors, who will decide whether charities which apply to issue bonds should be accepted. They are acting on a pro-bono basis and the company has no employees. Allia will provide services to the company under licence.
The first bond issue is currently in development and is expected to be announced shortly. It is expected to involve around £10m of bonds, although the charity involved has not yet been identified, and the term and interest rate of the bond are still to be finalised.
The bonds will be issued through the LSE’s Order Book for Retail Bonds, known as Orb. This will allow charities to issue bonds which can be bought by ordinary individuals as well as investment specialists, and can form part of an ISA.
The minimum order will be around £2,000, and bonds will be available to buy and sell on a constant basis. “Typically for a charity that wanted to issue £5m to £10m of bonds, the cost of listing would have been prohibitive,” Phil Caroe, chief operating officer at Allia, told Civil Society News. “This will address that market failure.”
Caroe said charity bonds would appeal to ethical and social investors.
“There is an increasing demand among private investors for fixed income products, and for ethical products,” he said. “But we also hope that charity investors will want to buy our bonds.”
Caroe also said he hoped that issuing a bond would increase a charity’s profile.
“It’s another way to increase people who have heard your name,” he said.
