HUDCO- Tax Free Bonds

By Research Desk
about 7 years ago
HUDCO- Tax Free Bonds

Its raining bonds, once again!

Now, Housing and Urban Development Corporation (HUDCO) has entering the debt capital market, on 21st February 2013, for the second time this calendar year (tranche 1 closed on 7th February, after extending closing date from 22nd January previously) with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures. Issue, closing on 15th March, has a size of Rs.500 crore, with an option in company’s hand to retain an oversubscription upto the shelf limit of Rs.2,806 crore. Bonds, rated AA+ by CARE and IRRPL (formerly Fitch), indicating high degree of safety regarding timely servicing of financial obligations, are proposed to be listed on NSE.

The current bonds are being offered under two series with features as under:-

 

Particulars

Series 1

Series 2

Tenor

10 Years

15 Years

Frequency of Interest Payment

Annual

Annual

Minimum Application Size

Rs.5,000 (5 Bonds)

Rs.5,000 (5 Bonds)

In Multilpes of

Rs.1,000 (1 Bond)

Rs.1,000 (1 Bond)

Face Value (Rs/Bond)

Rs.1,000

Rs.1,000

Issue Price (Rs/Bond)

Rs.1,000

Rs.1,000

Coupon Rate (%) p.a.

   
  • For retail investors*

7.53% p.a.

7.69% p.a.

  • Other than retail investors

7.03% p.a.

7.19% p.a.

Put / call Option

None

None

*40% of issue reserved for retail investors.

Bonds are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Also, the bonds do not have any lock-in period.

Similar to earlier issues, these bonds also have the step down feature, wherein a retail investor will get a lower interest rate if he purchases the bonds from the secondary market (post-listing) i.e. he will earn interest of 7.03% p.a. and 7.19% p.a. on Series 1 and Series 2 bonds respectively, losing out on the 50 basis point premium on interest. 

HUDCO’s 15 year (Series 2) bonds are comparable to 11.13% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. Currently listed HUDCO bonds (issued in early 2012) are trading on BSE with yields of 7.68% - 7.78%, which is comparable to 15 year bond. However, the listed 10 year bond with 7.68% yields is more compelling than the current offering of 7.53%. Trache 1 bonds which closed two weeks back are yet to be listed on NSE. However, there is steep reduction in coupon rates for retail investors in a matter of 2 weeks, down 0.32% from 8.01% to 7.69% for Series 2 (15 year bonds). Similarly, 10 year bonds are offering 31 basis points lower interest rates of 7.53%, less than 7.84% of Tranche 1. 

Current HUDCO bonds are more attractive than PFC’ (currently open) and REC’s (forthcoming on 25th February). Those retail investors who are yet to make their allocation to fixed income securities for this fiscal, can look to build an asset here with HUDCO as long term fixed income is attractive, coupled with rumours of discontinuation of tax free bonds from the next budget.  

 

 

 

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