MIDAS by JOANNE HART: Bonds that are safe as houses

By
Joanne Hart

Last updated at 10:19 PM on 4th June 2011

Listed buildings: David Cowans, boss of Places for People, is seeking backers

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 four per cent 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 £50million 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 per cent of Rank and
has just bought a further
11 per cent from another
investor, Genting. Any
investor who amasses more
than 30 per cent 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 £500 million 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.

Traded: Main market Ticker: RNK
Contact: 01628 504000 or rank.com

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