HUDCO 7.69% Tax-Free Bonds – Tranche II – March 2016 Issue

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 skukreja@investitude.co.in

It seems like the hunger for tax-free bonds is just growing unabated and whatever the issue size be it would be gobbled up by the investors on the first day itself. HUDCO will launch its second issue of tax-free bonds from 2nd of March i.e. the coming Wednesday and though the company has fixed March 10 to be the closing date of this issue, I think there is no need to emphasize here on this forum that nobody should expect to get any allotment if the bid is not made on the first day itself.

It will be the ninth such issue of tax-free bonds for the current financial year, but none of the issues has lasted for more than one day to get oversubscribed, except for the NHAI Tranche I in December. Though I think for any issue to last for more than one day the quota for the retail investors has to be more than Rs. 2,000-2,500 crore, this issue has only Rs. 715 crore for the individual investors investing Rs. 10 lakhs or less.

Here are the main features of HUDCO Tax-Free Bonds Tranche II:

Size of the Issue – Out of Rs. 5,000 crore allocated to HUDCO to be raised this financial year, 70% i.e. Rs. 3,500 crore should be raised through public issues. HUDCO raised Rs. 1,711.50 crore through its first public issue in January and it will raise the remaining Rs. 1,788.50 crore in this issue.

Coupon Rates on Offer – HUDCO issue will carry coupon rates which are absolutely same as offered by NHAI in its issue which got closed yesterday – 7.29% for the 10-year option and 7.69% for the 15-year option. Like the NHAI issue, this issue also will not offer the 20-year option.

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For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option and 30 basis points (or 0.30%) for the 15-year option, as it was the case in the NHAI issue as well.

Rating of the Issue – CARE and India Ratings have assigned ‘AAA’ rating to the issue, indicating that the issue is quite safe to invest and the company is highly likely to pay its debt obligations in a timely manner. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Again, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 715.40 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first-come-first-served (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 & Allotment – HUDCO bonds will get listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. Whether you apply for these bonds in demat or physical form, the interest payment will still be credited to your bank account through ECS.

Also, even if you get these bonds allotted in an electronic form, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

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 face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – HUDCO will make its first interest payment on December 15 this year and subsequent interest payments will also be made on December 15 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

Budget 2016 will be presented in the parliament on February 29 and we will get to know whether we will have these tax-free bonds available or not for the next financial year. In case the finance minister Mr. Arun Jaitley decides against extending this facility to these public sector units, then I think there will be a rise in the demand for the already listed tax-free bonds and hence, we can expect a rise in their market value as well.

Also, a higher fiscal deficit number will result in an increase in bond yields, which in turn will result in a higher coupon rates for the IRFC and NABARD issues. So, in case there is a jump in bond yields, then you should wait for the these two issues to decide on your final investments. I’ll update this post on March 1 after the climax of Budget 2016 gets revealed.

Expected Launch Date of IRFC and NABARD Issues – 2nd week of March

Application Form for HUDCO Tax Free Bonds

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

314 thoughts on “HUDCO 7.69% Tax-Free Bonds – Tranche II – March 2016 Issue”

  1. Just received the intimation that Rs.816.00 of Credit interest for Nabard Tax Free Bonds, though no intimation of allotment of Bonds. It appears that I have been allotted full 300 Bonds as the interest @ 7.64% Full.

  2. I received an SMS from NSDL – 300 Bonds -IRFC -7.64% credited to my account on 22/3/2016. This is is full allotment as a had applied for only 300 Bonds.

    However, AxisDirect Web site does not show the credit.

  3. There appear to be more sellers than buyers for HUDCO TFB’s in the resale market. Guess people want to cash in on the gains before they evaporate. Price seems to be stabilising at 1035

    1. It is natural. There would always be more sellers than buyers when these bonds get listed. Very few people would be interested to buy these bonds from the markets at 3.5% premium immediately around listing.

  4. what is the website where you can sec the trading priced of all tax free bonds which are listed in the market

  5. tax free bonds if bought from secondary market the interest coupon rate as per ipo will be the same for the buyer or it will be different regards

  6. Once name do not match it is treated as off line transaction
    And charges as per broker will apply
    So u suffer

    1. Hi

      Can you summarize all the tax free bond issues in this financial year in one table format with their interest payment dates.

  7. I think all brokers are the same. In my case also, HUDCO bonds are not showing in my Demat account. Maybe in the next day or so.

  8. I am quite puzzled by the interest shown by people in the Listing Price of these TFB!! Is there something I am missing? I have been investing in these TFB’s to earn assured tax-free Interest till maturity … and looking at the “listing” as unlikely exit-route for emergency fund need. Please advise anyone? -KS

    1. Probably, investors are just curious to know the premium their recent investment has earned for them, that is it. I don’t think many investors would like to buy from the secondary markets at higher prices and pay high brokerage as well or sell it too early.

  9. What is Hudco 7.69% TFB Listing price Expected ??

    TodaY NHAI 7.69% TFB are closed at 1029 around
    can we expect listing price of 1029 around???

    1. vishal, no doubt about it. In fact NHAI started with 1010 and went up fast to 1020 in the first day. I feel Hudco would start with 1020 and go up to 1030 in no time. Surprising IREDA 7.74% TFB is trading @ 1000. Can anyone tell us why?.

          1. Hi Bala , I am not sure where you find this 1000. It was trading above 1040. Probably this was one bond which was in demand last week.

            1. In the beneficiary account, the last traded price of the security is shown. In case of 753IREDA26, it is being shown as 1000. It is a fact that about 7 days back , 10 bonds had got sold at 1000. I have been trying to buy these bonds since then at 1020, but there is no seller at that price.

              As an aside, people who want to buy in the secondary market should opt for 15 years bonds because these have more liquidity as compared to 10 year bonds.

  10. DMAT IS POSSIBLE TO SHIFT BUT OFF LINE transactions CHARGES are applicable which is equal to 1% of holding plus service tax.

      1. Hi Shiv

        No charges is applicable only if someone is closing a demat account and moving all securities to another demat account of same name. if partial movement is done , offline transaction charges are applicable. For ICICI bank , charges are fraction of a percentage of value of securities plus service tax. I recently went through this process and had to pay the amount

        Regards
        Ramadas

          1. Dear M/s. Shiv/Ramdas. Would like to know if the Demat A/c to which all securities are being transferred to are in Joint Names with the first name being identical in the earlier/previous Single holding Demat A/c, would still transfer charges apply?
            Due to wrong advice by ICICI we opened Demat a/c only in a single name, which was an erroneous decision.
            Now we want to transfer to a new Demat Account with joint names for safety. How do you propose we go about it without incurring additional expenses. Will we have to pay for annual AMC for 2nd Demat A/c also?
            Is it advisable/economic to shift to a different DP or continue with ICICI?

        1. Dear M/s. Shiv/Ramdas. Would like to know if the Demat A/c to which all securities are being transferred to are in Joint Names with the first name being identical in the earlier/previous Single holding Demat A/c, would still transfer charges apply?
          Due to wrong advice by ICICI we opened Demat a/c only in a single name, which was an erroneous decision.
          Now we want to transfer to a new Demat Account with joint names for safety. How do you propose we go about it without incurring additional expenses. Will we have to pay for annual AMC for 2nd Demat A/c also?
          Is it advisable/economic to shift to a different DP or continue with ICICI?

          1. Hi S.K.,
            To avoid charges, order of your new demat account has to be absolutely same as it is there in the old demat account and you’ll have to close your old demat account. AMC charges are there with most of the brokerages, so you may opt for one time demat charges of around Rs. 1,500 or so.

  11. Received SMS from NSDL about Allotment & credit of HUDCO Bonds to my Demat Account st 9.00 pm today. But still not being shown in my account with ICICI Direct even at 10.30pm. As usual poor service & inefficiency displayed by ICICI Direct.

    Can other readers share their experiences with their service providers and share the brokerage & AMC & other charges if any. Recommendations & suggestions are welcome.
    Is Demat portability possible? Can I shift to a different brokerage house without charges?

    1. I’m with ICICI for last 7 years and having invested through them in almost every TFB issue since 2013 I can assure you with ICICI It normally takes day or two after refund for bonds to show in your demat account.

      1. Ikjot, this late Demat display is just one of the problems of ICICI Direct. Even after it is displayed in Demat, it is not reflected in our portfolio. PFC TFB till date is not listed in the portfolio. The Brokerage & other charges are very high. They do not respond/act on your emails. Even the FEEDBACK PAGE on their website does not work! One laboriously fills up the entire page & all sections only to find that the FEEDBACK page refuses to respond & get accepted! Ultimate proof of their reluctance to respond to customer needs & improve!

          1. Most of the service providers in India lack professionalism and accountability. Despite of the fact that these tax-free bonds or other financial products generate a lot of revenue for these brokers, including ICICI Direct, they do not show any interest in improving their services and generating better experiences for their customers. The reason is simple – we just don’t want to work hard, we want free money.

            1. Same is the case with AXISDIRECT. I received SMS from NSDL on 15/3/2016 @ 1900 hrs for crediting 156 HUDCO TFBs to my account. I checked up my account several times. Till date no credit. I wrote to helpdesk@axisdirect. No acknowledment. No reply so far.

            2. I fully agree Shiv. Service standards for majority of brokers/banks/insurance companies are pathetic. Focus is not on customer but on revenue which can be extracted from customer.

              It is a relief that people like you provide awesome contribution to investors through your blog without any financial incentive expectation. Hats off to you.

        1. I fully endorse your views, ridiculously high brokerage of 1% they charge for every transaction dealing in NCD’s or bonds on top of the 500 or so annual fee. I’ve already started the process of moving to another brokerage firm and will soon transfer my holdings…

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