space
space

Get in Touch

spacer(91)-20-30242014
Sunday
Mar 01, 2015
subscribe
You are here article details
 

HUDCO – Tax Free Bonds

By Vidrum Mehta | 12/28/2012 8:39 AM Friday

Introduction

Recently, many companies have been raising funds from the market by issuing tax-free bonds. Three companies have already come out with their bonds, viz. Rural Electrification Corporation (REC), which tapped the market in early December 2012, while the issues of Power Finance Corporation (PFCL) and India Infrastructure Finance Company (IIFCL) are currently open. Joining the bandwagon now is Housing and Urban Development Corporation (HUDCO). 

In the Union Budget 2012, the government allowed some companies to raise funds up to an aggregate of Rs 60,000 crore by issuing such bonds. The move came in light of the fact that the government wished the retail investors to participate in India's infrastructural development.

About The Issue

HUDCO intends to raise funds around Rs 750 crore with an option to retain over-subscription of an additional Rs 4250 crore. The funds raised would be used by the company for lending purposes, for its working capital requirement, as well as for other operational requirements like debt servicing.

The issue will open on Jan 9, 2012 and is expected to close on Jan 22, 2012. The face value of the bonds is Rs 1000, and it has a minimum application value of Rs 5000 (5 bonds, each of FV Rs 1000). Thereafter, the application can be made in multiples of one bond (i.e. Rs 1000).

HUDCO is offering two series for investors to choose from. Series 1 is for a tenure of 10 years, with a coupon rate of 7.84%, while Series 2 is for a tenure of 15 years, with a coupon rate of 8.01%. The interest on both the options would be paid annually. The bonds would be listed only on the National Stock Exchange (NSE).

The company is offering attractive rates for different tenure as compared to other recent issues. For instance, for tenures of 10 and 15 years, REC offered coupon rates of 7.72% and 7.88% respectively, while PFC offered 7.69% and 7.86% for similar periods. IIFCL offered rates of 7.69%, 7.86% and 7.9% for tenures of 10, 15 and 20 years respectively. HUDCO is offering coupon rates that are higher by around 15 basis points for both the tenure. This will result in higher interest income in the hands of the retail individuals.

About The Company

HUDCO was established way back in 1970 and is a public sector entity engaged in financing housing and urban infrastructure projects throughout India. On the financial front, the company has posted good numbers. For FY2012, the revenue from its operations increased by 21% to Rs 2738 and the net profit grew by 14.54% to Rs 630 crore on a YoY basis. The interest coverage ratio for FY2012 stands at 1.58x, which we believe is adequate to pay off its regular interest payments. Going forward, we believe that the company would be able to pay interest to its investors in a timely manner.

Conclusion

The Indian economy is growing at good rate. As the country grows, the interest rates tend to reduce, which is evident from the fact that developed nations have very low interest rates. Hence, this would be a good investment bet for those investors those who wish to park funds for a long-term horizon.

The issue is more attractive to investors who come under the higher tax brackets (30.9%). Thus, an investor gets an effective rate of 11.35% and 11.59% for tenures of 10 and 15 years respectively. For individuals falling under lower tax brackets, the benefit tends to be lesser as the fixed deposit rates for a tenure of around 5 years are in the range of 8.5%-9% (pre-tax).

One should note that even though the bonds would be listed on the NSE, the volumes on the counter might be low and hence liquidity could be an issue. Hence, investors those who wish to invest for a longer-term horizon should go with the same. Also note that there will be no Tax Deducted at Source (TDS) on the interest earned.

While there would be more such issues in the market, those who wish to invest in tax-free bonds should invest in this issue and not wait for other offerings. This is because the interest rate is expected to come down from the March quarter of 2013, and hence, one might see companies offering lower coupon rates going ahead.

Of the two series available, we would advise investors to opt for the second one as it is offering a higher coupon rate and is offered for a tenure of 15 years.

Issue Information

HUDCO Tranche 1 – Tax Free Bonds

Particulars

Series 1 Bonds

Series 2 Bonds

Face Value

Rs 1,000

Minimum Application

Rs 5000 (i.e. 5 Bonds)

Horizon

10 Years

15 Years

Coupon for Retail Individuals (% p.a.)

7.84

8.01

Interest Payment

Annual

Annual

Issue Opens On

9th January 2013

Issue Closes On

22nd January 2013

Listed On

NSE

Tax Rate (%)

Effective Yield (Pre Tax)

10.3

8.74

8.93

20.6

9.87

10.09

30.9

11.35

11.59

Find More Articles on: Markets, DSIJ Mindshare, Economy

Related Readings

Top 10 companies with Lowest Foreign Institutional Investors (FIIs) Holding in BSE 100 Companies

DSIJ.in Exclusive

LatestMost PopularMarket Action

Union Budget: One Of The Most Sought Out Budget

After the “Dream Budget” presented by P Chidambaram in year 1997, this union budget was one of the most sought out budget. The finance minister presented a balanced budget that will give boost to both infrastructure and manufacturing. This will help India to utilise its demographic dividend to its advantage. To achieve this government has even relaxed their fiscal discipline targets.

Sensex, Nifty Surges, Bankex Resilient.

In an unusual move, equity market was opened today on account of Union Budget. In today’s trade Indices witnessed a choppy action till mid-session. However, the Bankex stocks shown the scintillating rally to pull the markets in last hour of trade, and Banking index were up by 714 points. The Markets closed at the highest mark of the month with record break volume. The Nifty broke all the major hurdles and closed up by 57 points at 8901 while Sensex was up by 141 points at 29361 at the closing bell.

Index Trends And Stocks In Action February 28, 2015

Indian Equity market witnessed a surprisingly optimistic trading session in last day trade. The Nifty closed at higher level around 8844 up by 160 points. On daily chart nifty formed a bullish engulfing candlestick pattern along with higher volumes after broke 8800 level. In the present intraday scenario, indices in the grip of the bulls remain same above 8770/8800 levels. On downside the levels of 8720/8680 will be act as immediate support levels. Alternatively in the present scenario the doors are already open for 9000 and above mark.

Markets to Open Strong Ahead Of Union Budget

It was cheerful Friday for the markets after sell off on Thursday despite of a constructive rail budget. A day before the Union Budget to be presented, optimism has created by the economic survey for 2014-15 which further raised expectations from today’s Union Budget. The markets yesterday were not in a mood to see look back and all indices except FMCG index were closed in green with good gains on bourses. The benchmark indices BSE Sensex and NSE Nifty were up by 1.65 and 1.85 per cent at 29220 and 8845 respectively.

Bulls Are Back Before Budget, Indices Up More Than 1.5%

The Indian markets witnessed superb recovery in today’s trade. Capital Goods and Bankex outperformers and were up around 600 points each. Auto and Metals also pulled from the lower ends and were up by 417 points and 310 points respectively. The Nifty gave a bullish crossover at the closing bell and were up by 160 points at 8844, while Sensex was up by 473 points at 29220.

Index Trends And Stocks In Action February 27, 2015

The Indian markets ended with deep cut as heavy selling emerged after the Railway Minister announced hike in Freight rate. On daily chart nifty formed a bearish candlestick pattern along with higher volumes; it also breached its important support level of 8720 which was also its 20-day EMA so this suggests bears are getting into momentum for fresh leg of selling.

Markets May See Strong Buying Interest after Yesterday’s Selling

Yesterday there was expiry of February F&O series, which was very tough for the Indian markets. The Indian benchmark index NSE Nifty was almost down by 3 per cent. Furthermore, the constructive railway budget too could not provide cheer for the markets. Rather the market lost almost 1 per cent on the Railway budget announcement day expecting something more what the government announced earlier.

Indices Plunge, Nifty Drop Below 8700

The Indian stock markets witnessed massive amount of volatility in today’s trade, ahead of Railway Budget as well as F&O expiry session. The indices saw a deep cut after mid-session and ended below crucial support levels. All the sectoral indices have been hammered badly, Auto Bankex and Capital Goods were major culprits, and were down around 200 points each.The Nifty index closed down by 83 points, while Sensex was down by 261 points at 28746 level at the closing bell.

Index Trends And Stocks In Action February 26, 2015

The Indian markets started the day on positive note on back of positive cues from global markets. However as the day progressed markets were unable to hold on to their gains amid selling pressure in Pharma, Banking and other heavyweights. Index after a gap up opening extended the gains, but it failed to cross the strong supply zone which is in zone of 8830-8845 which suggests that bears are still holding the upper hand in near term.

Railway Budget Will Drive the Market

Indian markets again closed flat after last hour sell off with strong trading in green since the morning. The markets are not sustaining the gains on bourses and experiencing a sell off ahead of derivative expiry and union budget. The railway stocks showed considerable correction on a day before the railway budget.

DSIJ Breakfast News

Start your day with DSIJ Breakfast Roundup, wind up with DSIJ Market Roundup. Register now to get the day’s market outlook, global cues, economic trends, top corporate news delivered straight to your inbox.

mail to

Start your day with DSIJ Breakfast Roundup, wind up with DSIJ Market Roundup. Register now to get the day’s market outlook, global cues, economic trends, top corporate news delivered straight to your inbox.

mail to  *
 *
 *
 *
 *
 *
Content

WE VALUE YOUR FEEDBACK

(* No Research/Stock Queries)
Name :
Email ID :
Cell Number :
Message :
Content