International Personal Finance launches retail bond

IPF is looking to raise about £50m from retail investors and will use the money for its general corporate purposes, rather than refinancing any existing lending. In common with other FTSE 250 companies that have approached retail investors, the first bond is usually to test whether the market is viable as a source of funding. If precedent is any guide, IPF should have few problems getting the bond away. For example, a recent 6 per cent issue by Provident Financial closed in less than a week, showing that with interest rates low there is still great investor demand for sources of decent income.

But there shouldn't be any confusion about what is meant by "doorstep loans". This picaresque phrase really means lending to higher-risk creditors at much greater levels of interest than conventional financial institutions would charge, which simply reflects the higher probability of default. The company's main markets are in Poland, Mexico, the Czech Republic and Hungary where credit is often hard to come by for most consumers. Still, the company traded relatively well during the worst of the downturn and benefited from new customers taking out loans as bank lending slowed. IPF is also relatively lightly geared, with shareholder funds - the nearest equivalent to core tier-one capital for a bank - making up about 57 per cent of its total lending.

That basic financial strength is reflected in a BB+ rating from ratings agency Fitch, which is technically a notch below investment grade and very close to being eligible for purchase by pension funds. Demand therefore should be robust in the secondary market if the performance of similar bonds is any guide - the Provident Financial bond has seen a capital increase of about 3 per cent. Most likely, the IPF will probably track the related Provident Financial issues, but probably maintain a small discount.