The largest independent UK oil producer, EnQuest, said it would be the first firm in the sector to launch a retail bond.
The bonds will pay fixed gross interest of 5.5% a year until 2022 and have a minimum initial subscription of £2,000.
It is understood EnQuest is looking to raise more than £50million.
Interest will be paid twice yearly on August 15 and February 15, with the first payment being made this August and the bonds maturing on February 15, 2022.
Investors can sell the bonds at any time on the open market through their stockbroker.
The bonds are expected to be admitted to trading on the Stock Exchange’s regulated market and through the order book for retail bonds (Orb) of the exchange on February 15.
Chief executive Amjad Bseisu said: “We are delighted to be the first oil company to launch a retail bond on Orb, which will provide retail investors with a new choice of sector to invest in. The bond will allow the company to diversify its funding base and extend the tenor of its borrowings and will complement our already strong balance sheet.”
EnQuest is a FTSE 250 company and was established through combining the UK North Sea assets and operations of Lundin Petroleum and Petrofac.
Barry Shepherd, an investment manager at Brewin Dolphin in Aberdeen, said last night that, until 2010, investors could only access bond markets in large size (around £100,000 per issue) or by buying into diversified bond funds.
He added: “This all changed, however, when the London Stock Exchange launched a new retail bond market called Orb which allowed individual investors access to retail bonds, typically with a minimum investment of £1,000.
“Since Orb was launched, some £2.8billion has been invested into retail bonds and more than 170 bonds are now listed. Big names to launch bonds include supermarket giant Tesco, electricity network giant National Grid and EnQuest is now joining the fray.
“As most readers are aware, these bonds are essentially IOUs written by companies as a way of accessing capital at a time when bank lending is very tight. While many investors see yields of 5.5-6.5% available on these bonds as a panacea to the modest rates available at the bank, they are clearly not without risks.
“First of all, the company still needs to be trading at the end of the term.
“Additionally, they are not protected by the Financial Services Compensation Scheme’s £85,000-guarantee on bank deposits, so if the company goes bust, so can your cash.
“Other risks include interest-rate risk and inflation-rate risk. Bond prices are significantly influenced by interest rates. Inflation risk includes the falling purchasing power of the interest payments which remain fixed throughout the bond’s life and also the erosion in real terms of the final capital repayment.”
