HUDCO lures investors with higher returns for its tax-free bonds issue

The company set to offer tax-free secured redeemable non-convertible bonds to raise Rs 750 cr

In a scenario where many tax-free bond issues are finding fewer takers compared to last fiscal, Housing and Urban Development Corporation (HUDCO) is hopeful of the success of its tax-free bonds issue.

The company is set to offer tax-free secured redeemable non-convertible bonds to raise Rs 750 crore, with an option to retain subscription up to Rs 5,000 crore.

"We are offering better yields for our bonds. The retail individual investor will get a yield of 8.01% for a 15 year bond. We are the only ones to offer a yield above 8%," said Achal Gupta, assistant general manager (finance), HUDCO.

According to Gupta, when the yield was fixed, the 10-year benchmark gilt yield was hovering around 8.17% and currently it is below 8%.

HUDCO is hopeful of attracting the retail individual investors who fall in the 30% income tax bracket. "The pre-tax returns works out to 11.5%," said Gupta.

According to Gupta, in their bond issue even Non-Resident Indian (NRIs) and Foreign Institutional Investors (FIIs) are eligible to invest due to which the chances of the success of the bonds are 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, series 2 with tenure of 15 years. The issue price for both the series is  Rs 1,000 per bond.

In the case of series 1 of the bonds, the coupon rate is 7.34% payable annually and in the case of series 2, the coupon rate is 7.51% payable annually. Retail individual investors investing up to Rs 10 lakh shall be entitled to coupon at the rate of 7.84% for 10 years and 8.01% for 15 years.

The company intends to utilise the issue proceeds for lending purposes, working capital requirements, augmenting the resource base of the company and other operational requirements including debt servicing, statutory payments, establishment and administrative purposes and other working capital requirements.

Not more than 10% of the overall issue size will be allocated to investors who are FIIs and eligible NRIs.

Rural Electrification Corporation (REC) was the first one to hit the market with a tax-free bond issue this fiscal. The issue had hit the market last month and raised about Rs 3,000 crore, against the target of Rs 5,500 crore, including the green-shoe option. The company was offering interest rates of 7.22% and 7.38% per annum for 10 and 15 year tenure for retail investors. However,  an additional interest at the rate of 0.50% per annum was payable to retail individual investors applying for an amount aggregating upto and including Rs 10 lakh.

Similarly, Power Finance Corporation's Rs 5,590-crore bond issue (including the green-shoe units) got extended. The bonds were for a period of 10 and 15 years offering coupon rate between 7.69% and 7.86%.