This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]
After a month long break, tax free bond issues are back and the 10-year options are looking much healthier now carrying annual coupon rates of 8.76% and 8.66% for ‘AA+’ rated HUDCO issue and ‘AAA’ rated NTPC issue respectively, as against its previous highs of 8.43% for ‘AAA’ rated PFC & NHPC issues and 8.39% for ‘AA+’ rated HUDCO issue.
While this jump has come due to a consistent rise in the yield of the benchmark 7.16% 10-year government bond, the coupon rates with 15-year option and 20-year option have been the highest ever with the HUDCO issue as it is rated ‘AA+’ and carries a leverage of 10 basis points (or 0.10% per annum). I’ll cover the HUDCO issue today and the NTPC issue tomorrow.
HUDCO is launching the second tranche of its tax free bonds from Monday, December 2nd and it will be the first ever tax free bond issue to cross the psychological mark of 9% coupon rate.
Size of the Issue – HUDCO has set the base issue size at Rs. 500 crore with an option to retain oversubscription up to Rs. 2,439.20 crore. The company has already raised Rs. 2,560.80 crore in its first tranche and through a private placement. I think this issue is attractive enough for it to become the last issue from HUDCO’s stable.
Rating of the Issue – Like Tranche I, this issue has also been rated ‘AA+’. CARE and India Ratings are the two companies which have passed their opinion to assign this rating to the current issue.
Again, the bonds are ‘Secured’ in nature as certain receivables of the company will be charged to the extent of amount to be mobilized under the issue. Also, as HUDCO is wholly-owned by the government of India, I would consider the investors’ investments to be comfortably safe in the issue.
OK to NRI Investment – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation basis as well as on non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible.
Investor Categories & Allocation Ratio – As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved for the allocation:
Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved
Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved
Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 30% of the issue is reserved
Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue is reserved
First Come First Served Allotment – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.
Listing – Bombay Stock Exchange (BSE) is the only exchange on which these bonds will get listed and the exchange has given its in-principle listing approval to the bonds issued under this tranche. As with all the recent issues, these bonds also will get allotted and listed within 12 working days from the closing date of the issue.
Demat/Physical Option – Investors can apply for these bonds either in physical form or in demat form, as per their comfort and requirement.
No Lock-In Period – These bonds are offering good rate of interest which is tax-free also under Indian taxation laws. As your investment does not provide any tax deduction, there isn’t any lock-in period with these bonds. As these bonds get listed on the BSE, you may sell them whenever you want at the market price.
Interest on Application Money & Refund – HUDCO is the only company which pays the same rate of interest as the applicable coupon rate is on the application money as well as on the money due for a refund. So, with the 20-year option, you’ll get 9.01% as the rate of interest on your application money as well as the refund amount.
Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.
Interest Payment Date – HUDCO has not announced the interest payment date of this issue as yet. I will update this post as and when it gets announced at the time of listing.
While it will be a bonanza for the fixed income investors, I’ll consider this to be a bad situation for the commercial banks, the government and the borrowers. Let’s check how.
Many people have been breaking their fixed deposits to invest in these tax free bonds. It is putting a lot of pressure on the banks to either hike their deposit rates or increase premature withdrawal charges.
As the money is moving out of taxable instruments like fixed deposits, post office schemes etc., the government is also losing out a big amount in tax revenues.
Higher rate of interest will force banks to hike their lending rates also in order to maintain their net interest margins (NIMs) and this outcome will put an additional burden on the borrowers.
With a huge difference between the 10-year interest rate and the 20-year or 15-year rates, I used to prefer the 20-year or 15-year options earlier. But, as the difference has narrowed down considerably, the 10-year option has also become quite attractive now. However, I still prefer the longer duration options as I think it is better to stay invested with longer duration bonds when the interest rates get higher.
Though the issue is scheduled to get closed on January 10, 2014, I really doubt that it would continue that long. I expect it to get closed earlier than that given other companies don’t offer a similar or higher rate of interest.
With coupon rate crossing 9% now on these tax free bonds, there is no reason for the investors to ignore such high rate of interest and keep investing their fresh money into fixed deposits or keep their money invested in it.
Application Form of HUDCO Tax Free Bonds
HUDCO Tax-Free Bonds – Bidding Centres
HUDCO Tax Free Bonds – Banking Matrix
Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in HUDCO tax-free bonds, you can contact me at +919811797407
Day 18 (December 26) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 374.74 crore as against Rs. 487.84 crore reserved
Category III – Rs. 553.74 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,190.36 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,165.87 crore as against total issue size of Rs. 2,439.20 crore
Think HUDCO will fall just short even if it keeps the issue open till 10th Jan
🙂
Hi,
I was wondering if you or anyone else would kindly consider clearing the following query:
Pls kindly clarify all the implications of the flowing article titled “RBI allows foreign retail investments in tax-free rupee bonds”
http://articles.economictimes.indiatimes.com/2013-12-25/news/45561782_1_ashutosh-khajuria-investor-base-fixed-deposits
What bonds are being referred to here? I see NHB has not allowed NRIs to invest in the recent tranche – would this RBI clarification imply NRI can invest?
Thanks in advance.
Hi Jayaram,
No, it does not mean that NRIs can invest in the current issue of NHB. I think this RBI decision needs to be notified before the foreign retail investors would be able to invest in these issues.
Day 17 (December 24) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 374.23 crore as against Rs. 487.84 crore reserved
Category III – Rs. 550.54 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,182.46 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,154.27 crore as against total issue size of Rs. 2,439.20 crore
NHB Tax-Free Bonds issue opens on December 30th. Coupon Rates – 8.51% for 10 years, 8.88% for 15 years and 9.01% for 20 years. It is a ‘AAA’ rated issue and closes on January 31, 2014. I am pleasantly surprised with the coupon rates.
Day 16 (December 23) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 372.68 crore as against Rs. 487.84 crore reserved
Category III – Rs. 548.98 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,172.72 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,141.41 crore as against total issue size of Rs. 2,439.20 crore
Hi Shiv
When do you think HUDCO will close their TFB? From extrapolating retail subscription , most likely by next monday , retail subscription will ensure total issue size is achieved. Do you think HUDCO will wait till Jan-10 or will announce closure once issue size is reached? I understand in the past companies have kept TFB issue open till retail gets fully subscribed even though issue size is reached, here the situation is completely reverse and not seen yet.
This site has become so informative that it has become a must visit for me every day to get latest info. Thanks for all the hard work you are putting in to post and respond to every query
Regards
Ramadas
Thanks Mr. Ramadas for your kind words !!
I think HUDCO issue should take at least 5-7 working days to get closed. HUDCO will not wait till January 10th to close the issue as the retail category has already got oversubscribed.
Companies wait for the retail category to get subscribed first and then the whole issue to get subscribed. They don’t close it until the retail category gets fully subscribed, like NHPC, NTPC etc.
Now, HUDCO is waiting for the whole issue to get fully subscribed, whereas IIFCL is waiting for the retail category to get fully subscribed. 🙂
Hi Shiv
Thanks for responding me.
But I think my question was not personalized query , I was just ask you if I apply on Monday what you think I will get the full allotment if it will not fully subscribe and if fully subscribe can they allot partial . I was asking you your view about this.
I hope you can understand me.
Thanks
Hi Shiv
As on Dec 20 in Category II – Rs. 360.73 crore against Rs. 487.84 crore reserved.
SO what you think if i apply for 10 Lac on Monday , will i get the full allotent ?
Sorry Paresh, I would not like to answer such personalized queries on a regular basis. You can avail my advisory services if you want me to answer such queries and more like that on a regular basis. Please don’t mind.
The unenthusiastic subscriptions for Category I,Ii and Iii are trying to give a message to retail investors!
Or is it just an excellent opportunity for Retail investors to grab some high interest bearing TFB even on Monday.
In view of falling interest rates now, is it advisable to subscribe for Hudco now? what are chances of full allotment on Monday?
Hi Mr. Ramesh,
With HUDCO application now, there is a complete uncertainty whether you’ll get allotment or not. It depends on the response from other categories of investors and how soon the issue gets closed. If you want to ensure full allotment, then you should subscribe to the IIFCL bonds.
Hi Shiv,
Is this coupon rate for cat IV i.e. retail investors?
Yes Debasis, it is for the retail investors.
IRFC issue to get launched on January 6th. Coupon Rates are 8.48% p.a. for 10 years and 8.65% p.a. for 15 years. 20 years option is not available. The issue closes on January 20th.
Day 15 (December 20) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 360.73 crore as against Rs. 487.84 crore reserved
Category III – Rs. 542.22 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,154.75 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,104.73 crore as against total issue size of Rs. 2,439.20 crore
Today’s subscription numbers ?
Thanks for the reminder Aditya! 🙂
Hi Shiv
On December 19 , 2013 against one of my question you have replied me :
CATEGORY II INVESTORS NEED NOT WORRY ABOUT RS. 10 LAC LIMIT…
so i have already submitted a application for Rs. 10 Lac in category II before a week. And if now i submit another application for another 10 Lac in category II , i will get the full allotment of Rs. 20 Lac.
Yes, that’s right Paresh.
Hi AGAIN Shiv!
If I apply for these, will I get 100% allotment since other Categories have not been subscribed for as yet?
Hi Simple,
In this case, if the application is submitted now, there is no guarantee that the retail investors will get 100% allotment. If other investors put in money any day before the issue gets closed, then they will be allotted bonds as per their reserved portion first. But, still there is a high probability that other categories won’t bid for a high amount now.
Thank you
You are welcome Simple!
NHAI to launch its tax-free bonds issue sometime around mid-January.
http://www.thehindubusinessline.com/markets/nhais-taxfree-bond-issue-to-hit-market-in-midjan/article5478623.ece
Day 14 (December 19) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 350.85 crore as against Rs. 487.84 crore reserved
Category III – Rs. 540.82 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,143.14 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,081.84 crore as against total issue size of Rs. 2,439.20 crore
Hi Shiv
I have already invested Rs. 1,40,000 before a week and now I would like to invest Rs. 7,60,000 more to-day. I think I will get the full allotment of total investment of Rs. 9,00,000 because total is less then ten lacs.
As on December 18 Category II – Rs. 347.33 crore as against Rs. 487.84 crore reserved.
My status is A O P Trust which fall in to category II.
I applied both applications in category II
I hope there should be no problem to apply 2 times in the same name and hope will get the full allotment because category II is still open by 140 crore
Hi Paresh,
Category II investors need not worry about Rs. 10 lakh limit. You can submit multiple applications under the same name (with same PAN) and your application won’t get rejected.
Day 13 (December 18) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 347.33 crore as against Rs. 487.84 crore reserved
Category III – Rs. 533.41 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,134.40 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,062.18 crore as against total issue size of Rs. 2,439.20 crore
In a great news, Dr. Rajan has left the Repo Rate and the CRR unchanged. The RBI wants to read more data before hiking rates from these levels.
Hi Shiv,
So where does that leave us now with the coupon rates for upcoming issues 🙂
Ok I guess you answered it on the other post
Hi Shiv,
what happens to accrued interest if bonds are sold before payout? say payout date is month away and I sell my holdings, the accrued interest goes to buyer?
Hi Binish,
Yes, that’s right. The person who holds the bonds on a day before the “Ex-Interest” date or whose name appears in the books of the Registrar on the “Record Date”, gets the interest paid on the “Interest Payment Date”.
thanks Shiv,
I have some HUDCO TFBs, which will receive payment on Feb’16 2013. I guess I will sell them and invest again hopefully in newer bonds after payout. Lets see.
hmm… just share your actions when you take a decision.