Anglian taps market for pounds 72.5m: Water company secures financing at 3.9% with rare type of issue

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The Independent Online
ANGLIAN WATER yesterday employed a rare type of sterling issue to raise pounds 72.5m at half the cost of money from the conventional bond markets.

The issue was of five-year bonds with warrants attached that can be switched into Anglian shares at the end of the period.

The issue, lead-managed by Schroders, has allowed Anglian to raise medium-term finance in effect for a rate of 3.9 per cent. This redemption yield compares with nearly 7 per cent if Anglian had issued a convertible bond and 7.5 per cent for a conventional bond.

While bonds convertible into equity have been fashionable recently, this is the first to employ warrants since a pounds 95m issue by Pilkington in April. That was also managed by Schroders and was itself the first recent sterling bond with UK equity warrants.

The Anglian issue attracted strong buying from the Continent where sterling was in favour because of the troubles of the exchange rate mechanism. The nominal value of the issue was raised pounds 5m to pounds 65m as a result.

Part of the money will be used to refinance the pounds 36m purchase in February of the Swedish water engineering group, Nordic Water.

Anglian has been diversifying away from water delivery and sewage treatment to process engineering, through Anglian Water Process Engineering, which bought Nordic.

Chris Mellor, Anglian's finance director, said the fund-raising was part of a policy of financing the group's international business without calling on the core water company for money.

He said: 'We led the way with our index-linked stock for our core financing. This is innovative for our non-core financing.' If switched fully into equity the issue will lead to a dilution of Anglian's equity by only 1 per cent in 1998.

Ron Lis, a Schroders director, said warrants were attractive to companies with high dividend yields for which convertible bonds would be expensive. He did not expect a rush of similar issues from water companies since they had such wide potential sources of funds and strong credit ratings.

The bonds were priced at 111.5 per cent of the nominal amount and will pay a coupon of 6.5 per cent a year in arrears. The bonds and warrants are to be listed on the Stock Exchange.