Investors have been offered 7pc interest from a new bond issued by a solar power company called Belectric.
The “Big60Million solar bond” has a minimum investment of just £60 and promises to pay interest twice a year.
The bond will have a five-year life, but because it is a “mini-bond” it cannot be traded on the stock market and must be held until maturity.
The proceeds from the bonds will be put towards financing a solar farm in the Cotswolds.
The company claimed that a £3,000 investment in the bond would produce enough income – £577 – to offset the equivalent of over a third of an average household’s annual electricity costs.
What is a mini-bond?
Like any bond, mini-bonds are in effect IOUs issued by companies, which sell them to investors in return for regular interest payments. The difference is that mini-bonds are sold directly and are not listed on any market. They therefore cannot be traded and must be held until they mature.
In this respect they differ from “retail bonds”, which are also aimed at small investors but are listed on a special market on the London Stock Exchange called the Order Book for Retail bonds (Orb). Mini-bonds are not covered by the regulations that apply to retail bonds.
Bonds, unlike deposits with banks, are not covered by the government protection scheme, the Financial Services Compensation Scheme (FSCS).
As with all bonds, the biggest risk is that the issuer goes bust, meaning that bondholders join the queue of creditors.