In a scenario where many tax-free bond issues are finding fewer takers compared to last year, Housing and Urban Development Corporation (Hudco) is hopeful of the success of its issue.
The company is set to offer tax-free secured, redeemable non-convertible bonds, to raise Rs750 crore, with an option to retain subscription up to Rs5,000 crore. “We are offering better yields. The retail individual investor will get a yield of 8.01 per cent for a 15-year bond. We are the only ones to offer a yield above eight per cent,” said Achal Gupta, assistant general manager (finance). He said when this was fixed, the 10-year benchmark gilt yield was around 8.17 per cent and is now below eight per cent.
Hudco hopes to attract individuals in the 30 per cent income tax bracket. “The pre-tax return (here, for the bond) works out to 11.5 per cent,” said Gupta. He said non-resident Indians and foreign institutional investors were also eligible to invest (the allocation to these two segments would not exceed 10 per cent of the total), so the chances of the issue’s success were higher.
The issue opens on Wednesday and shall close on January 22. The bonds are available in two series — series-1 with tenure of 10 years and series-2 for 15 years. The issue price for both is Rs1,000 a bond. In the case of series-1, the coupon rate is 7.34 per cent, payable annually, For series-2, it is 7.51 per cent, also payable annually. Individuals investing up to Rs10 lakh shall be entitled to a rate of 7.84 per cent for 10 years and 8.01 per cent for 15 years.
The company intends to utilise the proceeds for lending, working capital, augmenting the resource base and other operational requirements, including debt servicing.
Rural Electrification Corporation was the first to hit the market with a tax-free bond issue this financial year. This was last month and it raised about Rs3,000 crore, against a target of Rs5,500 crore, including an over-allotment option. The company was offering 7.22 per cent and 7.38 per cent annually for a 10-year and 15-year tenure, respectively, for retail investors.
An additional 0.50 per cent per annum was payable to individuals applying for an amount aggregating up to and including Rs10 lakh. Power Finance Corporation’s Rs5,590-crore bond issue (including over-allotment) got extended. The bonds were for periods of 10 and 15 years, offering a coupon rate between 7.69 per cent and 7.86 per cent.