Ocea launches mini-bond as regulator launches probe into debt product

By Roger Baird on Tuesday 2 April 2019

Alternative Lending

Property development firm Ocea argues there have been ‘many successful and high-profile mini-bonds over the years’.

Property development firm Ocea has launched a mini-bond that plans to raise £5m from investors, as the watchdog launches probe into these unregulated products.

The Southampton-based business plans to raise the cash through a five-year individual savings account (ISA) bond, targeting a yield of 6.85%.  

The company said it will invest the money in asset-backed UK property, and forecasts the bond will net £29.8m in revenues and profits of £25m over the period before returning the capital raised to investors.  

However, earlier this month Treasury Select Committee chairman Nicky Morgan wrote to regulator Financial Conduct Authority (FCA) demanding it consider whether mini-bonds should now fall under its remit. These products are currently unregulated.

Watchdog urged to act

Morgan also wrote to the Treasury urging it to force the FCA to look into these the way these bonds operate if the watchdog “declines to investigate”.

The move follows the collapse of investment firm London Capital & Finance in January, which saw around 11,500 mostly small investors invest £236m into its mini-bonds. Backers look set to lose around 80 per cent of their cash, because these products are not covered by the Financial Services Compensation Scheme, which protects the first £85,000 of consumer deposits.

The former conservative Secretary of State for Education Morgan said: “The FCA board should set out whether firms are using their FCA-authorisation in a way that may be misleading to consumers, whether consumers need greater clarity on what such an authorisation does to protect them, and whether mini bonds should now be regulated.”

Morgan added: “The stories of those affected by the actions of LC&F are distressing. The government and the regulator must do all they can to prevent history from repeating itself.”

The FCA released a short statement on Thursday saying it will investigate “whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm.” The watchdog also said that an "independent person" should look into its own supervision of LC&F.

Independent trustee

Ocea, formed in 2015, specialises in commercial-to-residential property conversions, primarily office buildings into apartments under permitted development. Its investors include retail and institutional investors such as Aldermore Bank and United Trust Bank.

Ocea co-founder and director Justine Curtis said: “There have been many successful and high profile mini-bonds over the years that have provided investors with high rates of return, but there are also a number that have failed, so it is very important that such investments provide the necessary investor protection.

“Ocea is committed to use our successful track record and provide a consistent return for investors, whilst protecting them with measures such as an independent security trustee to act on behalf of bondholders in the unlikely event that Ocea should default.”

The investment firm said that over the last four years it has purchased or developed 19 projects, with a gross development value worth over £100m which have provided “significant returns” to investors.

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