By Edward Simpkins
Marks & Spencer is preparing a £700m securitisation of part of its property portfolio in order to raise funds for a promised £2bn giveaway to investors within the next 12 months.

The company is currently examining its property assets, which include its famous Baker Street headquarters as well as stores, in a bid to work out how best to exploit the value of its property portfolio.

A bond issue backed by the income from a group of stores is emerging as a favoured route and should raise up to £700m. The properties would be placed in a wholly-owned subsidiary which would then be able to issue the bonds backed up by the freehold value of the stores and with the interest serviced by the rent paid to it by the stores.

Robert Colvill, M&S finance director, said the review process was still ongoing and a final decision had yet to be taken. One company insider said: "Securitisation is a cheaper form of debt finance because it is an asset-backed bond. If you look at the bond market, corporate bond rates have shot up."

If the bonds are backed by a portfolio of well located stores the rate of interest payable is likely to be lower than a corporate bond backed by M&S as a whole. "The trick is to get a good investment grade rating from the credit agencies," he added.

A bond issue is unlikely to be the only way in which M&S raises money from its property. It is also working on a sale and leaseback programme involving around 70 stores that should raise about £200m. But the advantage of a bond issue is that at the end of its life, M&S will still own its shops.

As well as raising money from its UK assets, M&S is selling outright its European operations and its UK-based catalogue business.