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
Hi Shiv,
Thanks very much for this.. Do you know on what date application amount interest will be credited to bank a/c?
Hi Jayaram,
Ideally they should have done it by now, but I don’t know why they’ve delayed it. But, 12 working days is the deadline from the closing date of the issue, which is January 21st.
Hi Shiv, Jayram – I got the HUDCO application money interest credited to my bank account late evening today
That’s great, thanks for sharing it Aditya!
HUDCO tax-free bonds to get listed on the BSE on January 17th i.e. Friday.
Here are the BSE codes for the same:
8.76% 10-year bonds – BSE Code – 961814
8.83% 15-year bonds – BSE Code – 961815
9.01% 20-year bonds – BSE Code – 961816
Deemed date of allotment has been fixed as January 13, 2014. Interest will be paid on January 13th every year.
Hi Shiv – Any news on the deemed date of allotment for HUDCO ?
Oh sorry, I just forgot to update it. Just give me a few minutes.
Has anyone got the HUDCO application interest amount ?
Hi Shiv, I had applied for these HUDCO bonds in physical form.. pls could you advise where I can check my allotment status? Thanks
Hi Jayaram,
You cannot check the allotment status of your application as of now, but here is the link to check it whenever it gets uploaded by the Registrar:
http://mis.karvycomputershare.com/ipo/#
You can check your bank account though for the credit of interest payment.
Hi Shiv, my demat account shows an allocation of the HUDCO bonds tonight, as of 10 PM.
Hi Rama, thanks for this info!
HUDCO allotment was really quick, faster than how I expected it to be.
Got Hudco and NHB bonds credited in my demat account !!! Only thing remaining is the interest money from HUDCO application.
Hi Shiv,
I have applied for these HUDCO TFBs on the first day in Cat 4 and its been a week since the issue closure. I do not have a demat account so I applied for paper bonds. Is there a way I can track my application ?
Thanks !!
Hi Gaurav,
I think you need not worry about it. It doesn’t really matter whether you applied for it on the 1st day or the last day, the allotment process starts only after the issue gets closed. I don’t think there is any way you can track the status of your application till the time the allotment gets started. Just wait for 4-5 days more and you’ll get to know the allotment status.
Thanks for the reply Shiv… much appreciated !!!
You are welcome!
Hi Shiv
I would like to know whether HUDCO TFB is closed on Friday or not , because I would like to invest on Monday
It has closed on Friday Paresh.
Day 24 (January 3) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 379.62 crore as against Rs. 487.84 crore reserved
Category III – Rs. 491.03 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,267.15 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,184.83 crore as against total issue size of Rs. 2,439.20 crore
The issue stands closed today.
Please post final subscription numbers.
Hi Shiv,
Total subscription is less than from 1st Jan. Cat-III lot of withdrawals happened, is there any specific reason?
Hi Ravi,
I don’t have any idea about the reasons for this withdrawal.
Day 23 (January 2) subscription figures:
Category I – Rs. 47.28 crore as against Rs. 243.92 crore reserved
Category II – Rs. 378.84 crore as against Rs. 487.84 crore reserved
Category III – Rs. 480.15 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,244.82 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,151.09 crore as against total issue size of Rs. 2,439.20 crore
Hi Shiv
Interesting trend in subscription . HNI’s started to withdraw bids. 94 crore withdrawn compared to yesterday. Dont understand why someone will withdraw a day before closure. I didnt understand why hudco is pre closing this issue with 300 crore lesser than target either. Is there any interest rate restriction for private placement of TFB?
Regards
Ramadas
Hi Ramadas,
Yes, it is interesting. HUDCO is closing the issue as it doesn’t want to drag it anymore. Most of the investors have already invested whatever amount they wanted to. Whatever amount is left, HUDCO will try to cover it through private placement(s), if required. Almost similar rules apply to private placements as well what they are for the public issues.
Please post today’s subscription numbers…
Also, HUDCO tax-free bonds issue is getting closed on Friday i.e. January 3rd, as against its scheduled closing date of January 10th.
But the issue is not yet subscribed, are they expecting it to be subscribed in next 2 days or is there something else?
As a retail investor, shall I apply to the issue even though the retail category is oversubscribed?
Probably they don’t want all the money to be raised in this public issue. They have the option to raise it through a private placement as well.
If you apply as a retail investor either today or tomorrow, you’ll get 100% allotment, in case other investor categories don’t put bulk money.
thanks.
You are welcome!
Day 22 (January 1) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 376.39 crore as against Rs. 487.84 crore reserved
Category III – Rs. 574.89 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,228.53 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,226.84 crore as against total issue size of Rs. 2,439.20 crore
Day 21 (December 31st) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 376.29 crore as against Rs. 487.84 crore reserved
Category III – Rs. 572.84 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,218.28 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,214.44 crore as against total issue size of Rs. 2,439.20 crore
Day 20 (December 30th) subscription figures:
Category I – Rs. 47.03 crore as against Rs. 243.92 crore reserved
Category II – Rs. 375.09 crore as against Rs. 487.84 crore reserved
Category III – Rs. 560.89 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,208.43 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,191.44 crore as against total issue size of Rs. 2,439.20 crore
Day 19 (December 27) 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. 558.04 crore as against Rs. 731.76 crore reserved
Category IV – Rs. 1,197.90 crore as against Rs. 975.68 crore reserved
Total Subscription – Rs. 2,177.72 crore as against total issue size of Rs. 2,439.20 crore
Subscription numbers please 🙂
Thanks for the reminder! 🙂
Hi Shiv
In IRFC Bond coupon rate for 15 years is 8.65 % , but my investment is in Category II , so what will be the coupon rate for that.
It will be same or less ?
8.65 is for retail , category II rate would be 8.40 %/