Severn Trent launches new bond for private investors

Image caption The mount of money Severn Trent raises will depend on interest from the public

The water company Severn Trent is raising money by offering an inflation-linked corporate bond to the public, rather than to professional investors.

The bond, a glorified IOU, will last for 10 years after which investors will get their money back, plus any rise in the retail prices index (RPI).

It will also pay investors interest of 1.3% each year, a return which will change in line with movements in RPI.

Investment bonds were launched in 2011 by Tesco, John Lewis and National Grid.

The initial minimum value of the bonds that can be bought from Severn Trent is £2,000.

Mike McKeon, chief financial officer at Severn Trent, said: "We are pleased to be the first water company to issue a retail bond.

"This retail bond issue diversifies our funding sources while also seeking to meet demand from retail investors for inflation linked products."

The bonds will be offered for sale until 4 July, and will then start trading on the London stock exchange on 11 July.

Their market value will therefore fluctuate and may fall, before they mature and are eventually repaid plus interest.

Investors are not covered by the Financial Services Compensation Scheme.

"In the event that Severn Trent defaults or becomes insolvent, investors may lose some or all of their investment," the company warned in a statement. .

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