CARDIFF University has broken a UK financial record in an effort to raise £300m.
The money is being raised via a higher education bond in which investors loan the university money in exchange for an annual return plus full repayment in 50 years. The rate on the Cardiff bond is 3.1%, the lowest ever for a UK higher education institution, which reflects how safe the investment is.
Managers at the university are planning to use the cash to develop their ‘Master Plan’, which includes a £300 million Innovation Campus which is due to be built by 2020.
The prospective design for the new innovation campus
Vice Chancellor Professor Colin Riordan said: “We are delighted with the success of this issue and the strong support shown by investors.
“Proceeds from the sale will help finance our strategic goals.
“We aim to provide new research, teaching and student facilities through our Master Plan that are among the best in the world.”
A Growth Market
The university bond market has grown significantly since 2012, with a number of high-profile universities issuing bonds.
In 2012, Cambridge University raised £350m at a 3.5% rate after being given an AAA score by ratings agency Moody’s. At the time, this was a better rating than both the Bank of England and the UK Government.
Manchester and Liverpool Universities have since both sought to raise money through issuing £300m and £250m bonds respectively.
Cardiff’s rate of 3.1% represents the lowest ever for a UK university and reflects not just confidence in the institution’s financial future but also the growing establishment of the university bond market.
Safer than China
The relatively low rate of 3.1% represents that Cardiff University is seen as a safe investment by international markets. This is demonstrated by comparing its rate with that of major countries.
Argentina (4.8%), China (3.6%) and Russia (9.8%) are all borrowing at a higher rate than Cardiff. These rates are not from 50-year bonds, which are uncommon, but are for 25-year commitments.
Despite borrowing at a lower rate than Cambridge University’s 2012 bond issue, Cardiff was only given an AA rating.
This represents the change in the university bond market over the last four years. Universities are now seen as very attractive to investors because the market is highly regulated. They constitute a low risk, as universities have government backing and are seen as vital parts of a skills-based economy.
What is a bond?
A bond is basically a loan. A country (or, in this case, an institution) can use them in order to get cash instantly.
They repay a percentage of the bond until the bond ‘matures’ (comes to an end). Then they have to pay back the whole amount on top.
Take Cardiff University’s bond for instance. They have borrowed £300m over 50 years at a rate of 3.1%. This means they have to pay back £9.3m a year until 2066. Then they have to repay the full £300m.
The rate of borrowing reflects how ‘risky’ the borrower is. If they are at a low risk of failing to pay it back (like Germany) investors will lend at a lower risk. If they are seen as a high risk (like Greece), investors will only be prepared to risk their money if there is a higher return on their cash.
