BBC turns to bonds to raise £800m for revamp

The BBC is to raise £800m through a bond issue to finance a redevelopment of its central London properties.

Morgan Stanley began marketing the issue yesterday. The money raised will be used for work at BBC Broadcasting House, the corporation's West End headquarters. The BBC has a joint venture with Land Securities, the property giant, to redevelop its 7.5 million sq ft property portfolio. This sees Land Securities borrow the money to finance the work on a project-by-project basis but, for the Broadcasting House site, the BBC has decided to use its top credit rating to tap the bond market.

The BBC's finance director, John Smith, said: "It just so happens that bonds have become very cheap. We're taking advantage of bond rates at historical lows."

Mr Smith said the BBC can borrow from the bond markets at 5 or 5.5 per cent, rather than have to pay the banks or Land Securities at 8 or 9 per cent. Given its guaranteed income from the licence fee, the BBC can command a AA credit rating. The bonds will be sold by a special purpose vehicle backed by the BBC.

The BBC owns the freehold to Broadcasting House, which it has occupied since 1932. Under a sale-and-leaseback deal, a 150-year lease will be sold to the special purpose vehicle. The BBC will then pay rent to occupy the site, which will be made into the biggest live broadcasting centre in the world.

Some £100m of the money raised will go towards buying the lease to Broadcasting House, while the rest will be used to modernise and extend the site and pay the interest on the bond. All the BBC's radio networks will be housed at the revamped facility, which will accommodate 3,500 staff. The site will provide accommodation for its television and radio journalists, including those currently at Television Centre at White City and the World Service, which is now at Bush House in Aldwych.