Rhino rugby equipment company offers 7.5% bond

Should you tackle Martin Johnson-backed firm's investment opportunity?

British sporting-goods firm Rhino, a well-known supplier of rugby equipment, has launched a mini-bond to raise £2 million to fund its plans for global expansion.

The company, which includes 2003 Rugby World Cup winner Martin Johnson as one of its major shareholders, is selling a five-year corporate bond paying interest of 7.5% a year. As an extra incentive, these bonds also offer perks to rugby fans, but is this investment a matchwinner or a hospital pass?

Rhino Rugby Bonds

Let's start by reviewing the fundamentals of this latest in a long line of company mini-bonds.

The bond issuer is Rhino-Powa Holdings Ltd, the global holding company for the Rhino and Powa brands. The bond's official name is the Rhino Rugby Bond and it's available from the Rhino Rugby Bond website.

This is a corporate bond, effectively a company debt or IOU. Also, it is a mini-bond, which means that it is not traded on any recognised exchange, nor is it transferable, apart from on death.

The launch date was 24th July and the closing date will be 1pm on 18th September or earlier if fully subscribed.

The bond matures, and returns investors' original capital, on 30th September 2020.

It pays interest at a yearly rate of 7.5%, paid from the date payment clears. If you are a taxpayer, this interest will attract Income Tax at your marginal rate.

Rhino will deduct 20% interest at source and pay this to the taxman, giving you a net return of 6% a year. This bond can be held in a SIPP, but not in a tax-free ISA.

Interest is paid half-yearly, with the first interest payment covering the period from the original payment date to 31st March 2016.

The minimum investment is £2,000 and bonds can be bought in units of £1,000 thereafter.

As a bonus, Rhino will give each bondholder a free commemorative rugby ball with each bond certificate issued. In addition, it will offer occasional product discounts and prize draw tickets to the likes of Guinness PRO12 matches.

Given your money is locked away for five years, you should be confident in the company and clearly understand the risks of these and similar mini-bonds.

Let's start by looking at the bond's issuer, Rhino.

A big rugby brand

As a keen rugby fan, the Rhino brand is very familiar to me. The company makes and sells balls, shields, tackling and scrummaging kit, as well as training and match equipment, sports outfits and, more recently, fashion clothing.

Rhino was founded in Devon in the late Seventies and expanded rapidly over time to become official supplier to many leading rugby teams today, including the England and Wales national sides, Bath, London Wasps, Cardiff Blues and St Helens rugby league.

In late 2006, the company had a management buy-in and now includes former England player and manager Martin Johnson as a key shareholder. In short, Rhino is one of world rugby's leading training brands.

From 1989 to 2010, the company rarely brought in revenues above £1 million a year, but recent sales growth saw revenues hit nearly £2 million in both 2013/14 and 2014/15. However, due to investment in marketing and growth to capture market opportunities, the firm recorded operating losses of £96,000 in 2013, £226,000 in 2014 and £51,000 in 2015.

Now for the risks

It is important to understand that this mini-bond, as with all corporate bonds, is not a cash-based savings or deposit product. In effect it is a company IOU, repayable with interest over five years or so.

Most importantly, this means that it is not covered by the Financial Services Compensation Scheme (FSCS). This safety net covers 100% of the first £85,000 (£75,000 from January 2016) of cash savings per saver per institution. Therefore, if you are a cautious saver who doesn't want to take risks with your money to earn higher returns, then do not buy this bond.

What's more, if Rhino were to get into financial difficulty, then it might delay or cancel payment of bond interest. In the worst-case scenario, were the whole business to go bust, bondholders could lose up to 100% of their investment, because it is unsecured.

Also, this bond is highly illiquid and unlisted, making it highly difficult to sell once bought. Once you buy it, you're locked in – come what may – until September 2020. Therefore, don't put money into this bond that you will need at any point in the next five years or so.

In summary, if you are willing to take a risk with your cash and are attracted by this 7.5% yearly interest rate, then this bond may be right up your street. That said, don’t put more than you can afford to lose into this or any other corporate bond, because you are relying on a single company's future success. Also, remember the golden rule of investing: the higher the return, the greater the risk.

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