Midas: Bonds that are safe as houses
Midas tips Places for People, the first non-for-profit landlord to join the London Stock Exchange.
Listed buildings: David Cowans boss of Places for People is seeking backers
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Bonds that are as safe as houses
Housing associations have a mixed reputation. Critics say that they are about low-grade homes and badly behaved tenants. Others believe they are a force for good.
Places for People puts itself in the latter category, being one of the biggest housing associations in Britain with nearly 50,000 properties.
Established in 1965, it provides low-cost housing to tenants who are either retired, unemployed or on very low incomes. Rents are about £5,000 a year and many tenants receive housing benefit, giving the firm a secure, long-term income.
The group prides itself on homes that are on a par with private housing, taking the view that if tenants are well housed, they are more likely to pay their rent on time and treat their homes with respect.
The philosophy seems to work. Fewer than 4% of tenants are behind with their rent at any one time, while non-payers represent less than half a per cent of tenants.
The company is part-funded by the Government, but also seeks cash from external investors via bonds and placements. All the money it raises goes straight back into the business, either to fund new developments or maintain existing ones.
Chief executive David Cowans is raising £50m through a bond issue aimed at individual investors. The bonds are for five and a half years and will pay five per cent interest a year. They will be priced at 100p and investors need to make an initial investment of £2,000, going up in blocks of £100 after that.
Like most bond issues, the sales process will last two or three weeks, after which formal trading will begin. The bonds will be listed on the London Stock Exchange and investors will be able to trade them from the end of the month.
The deal is significant for the LSE because Places for People is the first housing association to list on its retail bond market. If the transaction is successful, other associations could follow. But for investors the key question is whether to invest in this debut issue.
On the plus side, Places for People is highly rated by credit rating agencies, which implies investors will be paid back when the bonds mature.
So far, nearly every bond launched on the LSE's retail market since it was set up 16 months ago is trading above its issue price. For instance, the bond launched in February at 100p by Tesco Personal Finance is trading at 104.25p while Provident Financial's bond, launched a month later at 100p, is now 105p.
Corporate bonds are not eligible for capital gains tax, so if investors sell, the gain is tax-free. But bonds are considered a bad investment during a period of inflation, particularly if interest rates rise. If bank rates rose substantially, Places for People's offer would lose its appeal.
Midas verdict: Places for People's five per cent interest is not as generous as some recent bond issues but the bonds should represent a safe investment. Recent statistics suggest that interest rates are not likely to rise substantially any time soon. It is worth putting a few of these bonds in the portfolio and keeping an eye on the price.
Contact: 020 7843 3800 or placesforpeople.co.uk
Investors betting on Rank's revival must hold their nerve
Rank has had more than its fair share of misfortune over the past decade. Hit by changes in taxation, the ban on smoking in public places and the recession, the company also expanded too far and too fast.
Chief executive Ian Burke has been doing his best to set the company straight since he arrived in 2006 and has made a pretty good job of it, concentrating on bingo, casinos and interactive gaming and upgrading venues so they are bright and modern.
Now Rank has received a 150p-a-share bid from Hong Kong investment group Guoco. The bid has arisen because Guoco holds 29.9% of Rank and has just bought a further 11 per cent from another investor, Genting. Any investor who amasses more than 30% of a company has to launch a bid, hence Guoco's offer.
But few people take this bid seriously. Even Guoco is thought to have priced it to fail, buying Genting's stake because it appreciates Burke's work not because it wants to seize control of Rank.
Midas verdict: Rank is trading at 150½p and most brokers value it at 185p or more. In addition, the group believes it is owed more than £500m by the Government for overpaid VAT payments.
Clarification on this issue should emerge over the coming months but the signs are promising and could mean special dividends for shareholders.
Existing investors should not sell. New investors may even consider buying at current levels.
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