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Hudco tax free bond up to 8.7% yield

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Third tax-free bond issue, worth Rs 5,000 crore, will be sold from September 17 to October 14, reports Ravi Ranjan Prasad TAX-FREE bonds are slated to hit the market back to back as the public sector undertakings try to raise money from public to fund India's starved growth story.

 

Besides issue size that has plenty for every one, the yields are getting better by the day, and not even imagined six months back when investors and analysts thought interest rates were poised to fall.

Housing and Urban Development Corporation's (Hudco) tax-free bonds are offering an interest rate of as high as 8.76 per cent to retail investors and 8.51 per cent to qualified institutional buyers (QIBs), corporates and high net worth individuals.

Hudco's third consecutive tax-free bond issue to raise up to Rs 5,000 crore this financial year will be open for subscription from September 17 to October 14, the company announced on Monday.

These bonds are secured, redeemable, non-convertible debentures each of Rs 1,000 face value and enjoy immunity from income-tax on interest earned under Section 10(15)(iv)(h) of Income Tax Act, 1961.

The state-owned lender to housing and infrastructure sector will is planning to raise Rs 750 crore in tranche I, with an option to retain oversubscription up to Rs 4,809.20 crore. It has already raised raised Rs 190.80 crore on a private placement basis.

Retail individual investors investing up to Rs 10 lakh will get a coupon rate of 8.39 per cent for 10-year bonds, 8.76 per cent for 15year and 8.74 per cent for 20-year bonds.

Those individual investors investing above Rs 10 lakh will be treated as high net worth investors and

will be offered a coupon rate of 8.14 per cent for 10 years, 8.51 per cent for 15 years and 8.49 per cent for 20 years at par with the rate offered to the QIBs and the corporates.

The yield from Hudco tax-free bonds are a tad higher than just concluded Rural Electrification Corporation (REC) tax-free bonds that offered retail investors 8.26 per cent for 10 years, 8.71 per cent for 15 years and 8.62 per cent for 20 years.

The allocation of Hudco tax-free bonds will is highly tilted in favour of retail investors who will be allotted 40 per cent of the issue size and another 30 per cent will be allotted to high net worth individuals. Corporates will be allocated 20 per cent of the issue size, while QIBs will be allocated 10 per cent of the issue size.

Achal Gupta, assistant general manager (finance), Hudco, said, "There is no put and call option indicating the bonds will not be recalled earlier and these bonds will have mature only after 10, 15 and 20 years." Hudco's tax-free bonds have got a credit rating of AA plus from CARE and India Ratings and Research. The bonds are proposed to be listed on BSE.

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