Fifty years. That’s a long time. No doubt, just like the writer of this article, it will see you through to your 71st birthday. By then, China will probably be the richest country in the world, India might well be second, and we will know the truth about global warming. Maybe by then we will be sunning it in Greenland, and swimming in the sea off the shores of the Alps. By then, the latest corporate bond, announced yesterday, and fully subscribed within a few hours, will have expired.
These days Tesco has an A star credit rating from Standard and Poor, while pension companies are keen to purchase assets that match their long-term liabilities. Put that together and what do you get? Answer: a 50-year bond, carrying a coupon of 5.2 percent, from the UK’s largest supermarket.
Tesco is raising around £500 million through the bond, and the proceeds will be used to re-finance existing debt.
It was 1994 the last time the UK saw the release of a 50-year bond, when British Gas employed a similar approach.
Actually, it seems to us that such an investment is actually quite risky. Aside from the argument that no one knows what the world will be like in 2057, speculating on which way the rate of interest will go between now and then is anyone’s guess.
© Investment & Business News 2013