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@example.com
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
202 thoughts on “HUDCO 9.01% Tax-Free Bonds Tranche II – December 2013 Issue”
I have query related to Tax Free Bonds in general.
In the IPOs for these bonds, the differential rates of interest were offered to the retail investors (investment up to 10 Lacs = 1000 Bonds) and general category investors i.e. the retail investors got marginally higher interest.
What about the TFBs bought from the stock market ? Whether the lower interest rate will be applicable irrespective of the no. of Bonds purchased or higher interest rate will be applicable up to 1000 Bonds and if one exceeds ceiling of 1000 Bonds, lower interest rate becomes applicable on the total holding ?
This may sound a little silly but I thought I ask you to be doubly sure.
In all the public issues of Tax Free Bonds during 20012-13, 2013-14 & 2014-14, the limit for retail investors was Rs. 10 L i.e. 1000 Bonds which fetched a slightly higher coupon rate than the non retail category.
If I buy more than 1000 bonds from the market now, what will be applicable interest rate – the one applicable to retail category or the lower rate ?
The first interest payout has happened on 13th January and the bond is now trading at around 1200 level. Do you have any idea whether it will go up further or will be it wise to book profit at these levels?
With falling interest rates, I think the value should further go up. But, I think the pace of capital appreciation should be slow and volatile going forward.
I applied for the HUDCO TAX FRRE BOND Tranche II Duirng december.I did not recive the bond allottment letter nor credit of interst to my bank account . I contacted the Axix bank where i had deposited the appplication and cheque . The Axix Bank had debited my account on 5.12.13 .They contacted KARVEY , and informed that i shall be getting allottement shortly . Then they informed during mid july 14 ,that allotment has not made and for refund I have to contact , Karvey Hyderabad. I contacted karvey hyderabd and their “Corporate registry investment cell ” informed that refund is bieng processed. Finally they refunded the principal only .On further enquiry they no interst for delay is payable and I can complain to any authority like SEBI etc. May i request you to inform the legal position , and how to get back my interst for delay period and if I have to complain to which authority to complain.I am an old lady and this amount was my life saving. This loss of intesr of about 10 month Which is about Rs 50000/- has really broken me.
Mrs Nirmala Pandey
Dear Mrs. Pandey,
Sorry to know about such a painful experience you had. SEBI is the regulatory authority for all such complaints, you’ll have to register your complaint with SEBI only.
Dear Shiv, It was very nice to talk to you today. Thanks for your time. Reg these HUDCO bonds,Is there a possibility to pls let me know where I can find details reg TDS info on short and long term capital gains for NRI’s – if it is sold in demat form. I had already checked the HUDCO prospectus and did a google search but not able to get info any specific info reg NRI applicants. Thanks in advance.
You are welcome Dr. Subramanian !!
Here is the link to check the TDS rates applicable to NRIs:
Hi Shiv, My brother is an NRI and had got the allotment letters for the above Dec 2013 series of HUDCO bonds in Physical Form. Is it compulsory that he should do any other thing such as applying for physical certificates of bond to receive annual interest in NRE a/c or it will just happen automatically every year without any further step? Thanks in advance.
Your brother will get interest amount credited directly to his NRE A/c. He must have got the interest on the application money credited to the same account when the bond allotment happened.
I have applied for HUDCO tax free bonds Tranche II in Dec 2013 and received the allotment letter for the bonds. I got a letter dated 18.3.2014 asking me to return the letter of allotment to Karvy by 04.04.2014. However, since I was traveling, I was not able to send the letter of allotment back to them by the due date. Will they nevertheless send me the bond certificates or can I still send the letter of allotment to them even after the deadline of 04.04.2014?
I think you should send the letter of allotment to Karvy as soon as possible. This would set you free with your responsibility.
I applied for HUDCO Transche II Bonds in Jan but haven’t yet got the allotment. I applied via ICICI Direct site and while the transaction shows as executed I am yet to get the bonds allotment and the ICICI Direct site does not show it in my portfolio as seemingly they have not got the info from HUDCO.
What all can I do?
Just check from the following link whether you’ve been allotted HUDCO tranche II bonds or not – http://mis.karvycomputershare.com/ipo/#
If it doesn’t show any allotment in your name, then you should either contact the Registrar (Karvy Computershare) or the ICICI Direct team to know why it is not showing there and why no allotment has been made.
I got letter of allotment for HUDCO tranche II bonds, the letter says that i need to send the letter to registrar of companies to get bond certificates. Can you please throw some light on process of what to do after getting letter of allotment, if i have subscribed for bonds in physical form.
That’s correct Kunal, you need to send the letter of allotment to the Registrar, Karvy Computershare, and they’ll send you the bond certificate to your registered address.
I got the allotment letter from HUDCO yesterday and it says that TDS is deducted from the interest payment of 37 days. Do you think it is correct if the TDS is deducted given that these are tax free bonds ?
Interest earned on the application money is taxable and that is why the company is right in deducting TDS on the interest earned by the investors. Actually, the tax-free interest period starts from the date of allotment and ends on the date of maturity.
They have correctly deducted TDS on this interest. however they have not mentioned the TAN number. We need that while filing tax returns. Somewhat unprofessional company, I would say.
Don’t worry, it would be there in your Form 26AS.
HUDCO bonds got listed today on the BSE. 9.01% 20-year bonds opened at Rs. 1,019, touched a high of Rs. 1,022, a low of Rs. 1,007.01 and finally closed at Rs. 1,009.08.
Hudco bonds listed on BSE today..Is trading now at Rs 1018
Thanks Raju for this info!
Dear Mr. Shiv
My demat account shows that units have been credited.But the link u had posted does not show the allotment status?
Please let me know your application no. or PAN no. You can do so on my email id either, if you don’t want to share it here.
Sorry, please don’t do that. HUDCO Tranche II allotment data is yet to get uploaded by Karvy Computershare.
Thats good shiv..
Okay .. then will interest on the application amount be paid till date of credit or only till date of allotment?
Obviously, only till the date of allotment.