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Clarion to issue short-term £250m bond as Brexit looms

The UK’s largest housing association is set to issue a £250m bond in a move that experts have suggested is part of a Brexit insurance policy.

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The UK’s largest housing association is set to issue a £250m bond in a move that experts have suggested is part of a Brexit insurance policy #ukhousing

Bank HSBC posted an update to the stock market indicating that it would act as bookrunner on the issuance, which will see Clarion issue the bond with a 10-year maturity.

This is an unusually short-term bond for housing associations, which tend to issue bonds over 30-year maturity periods.

Currently, the government can borrow money over a 10-year period at an interest rate of 1.24%, significantly less than the 30-year cost of borrowing, which is currently 1.83%.


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As a result, assuming Clarion can achieve the same ‘spread’ above the cost of government borrowing regardless of the maturity length, it is cheaper for the association to borrow money over 10 years.

Piers Williamson, chief executive of The Housing Finance Corporation, told Inside Housing: “Clarion’s pretty liquid, but we’re hearing particularly that the large developers’ boards are taking very conservative measures on garnering and managing liquidity, which is the right thing to do through March [in the run-up to Brexit].

“For an already liquid organisation, adding liquidity is an insurance policy but it comes at a cost, so you may want to minimise that.”

In November last year, Inside Housing reported that housing associations were preparing for the potential impact of a no-deal Brexit by raising extra money.

Those housing associations that have issued recently have not so far seen significant increases in pricing despite the uncertainty in the market over Brexit.

The aggregator MORhomes, however, which has 61 housing associations, has significantly delayed its first issue, with the organisation finding it difficult to arrange its various partners for the first issue.

Its chair, Neil Hadden, told Inside Housing last month that the state of the bond market wasn’t allowing the aggregator to issue yet.

Meanwhile, Mr Williamson said that the significant increases in borrowing costs predicted by some as a result of Brexit had not yet materialised.

He added: “If the premium for liquidity right now or into the end of January or February gets stupid, any borrower needs to be able to say, ‘We’re only prepared to pay this much for insurance.’”

Gareth Francis, director of treasury and corporate finance at Clarion Housing Group, said: “As part of our long-term funding programme it was important to us to diversify our investor base whilst maintaining support of existing investors.

"In issuing this tenor we have responded to consistent feedback from many investors who have expressed a desire for much shorter dates than have traditionally come from the HA sector. It has also locked in an excellent cost of funds that will help build more homes and successful communities.”

 

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