HUDCO tax free bonds list at a significant discount

After the dismal listing of IRFC tax free bonds (they listed at a small premium) – the HUDCO tax free bonds listed today, and both the series listed at quite a discount.

HUDCO – N2 which is the 15 year series fared worse than the 10 year series and ended the day at a price of Rs. 945, while HUDCO – N3 which is the 10 year series ended the day at a better price of Rs. 980.

Now due to these discounts, both the issues have got quite good yields now and give a good opportunity to genuine long term investors to invest in these bonds.

I think the price action on the HUDCO and the IRFC issue shows that the discount is due to the nature of the applications and not because of the companies themselves. As others have said earlier, it looks like there were a large number of people who raised money from their overdraft accounts and took loans from other sources to invest in these bonds, and when the listing gains didn’t materialize – they had to sell the bonds even at a discount.

I feel that as the market settles down having absorbed the impact of this fall and as interest rates moderate in what will probably be the latter half of this year – the prices of these bonds will pick up, and I think there is a good window of opportunity in the next few months for people interested in bonds to pick up a few of these tax free bonds.

Even though these companies are rated quite highly by the credit rating agencies – I think it is still best to diversify your portfolio and not get too much into debt of just one company. Especially because, unlike equities where concentration in a few stocks can give you humongous returns if any of those stocks turn out to be a tenbagger – this possibility doesn’t exist in the bond market. And remember, even companies like General Motors go bankrupt and there were pensioners who had their savings tied up in GM bonds and had to take big losses on them.

The other thing to keep in mind specifically with respect to these bonds is that they have the step down feature which means you won’t get the same rate of interest as the first subscriber when you buy these from the stock exchange. The 10 year series will get 8.10% and the 15 year series will get 8.20%.

2 thoughts on “HUDCO tax free bonds list at a significant discount”

  1. I recently made an investment in REC tax free bonds. Not for listing gains but as a long term investment. Had I known that HUDCO would list at such a discount, I could have bought this from the market at a bargain price :-(.

    We live and learn. Thanks for putting this up.

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