Thursday, July 25News That Matters

HUDCO Tax free Bonds 2013 Details – Tranche II – Details & Review


UPDATE – For HUDCO Tax free bonds in Sep 2013- Oct2013, please go to this link

Below, post is for HUDCO bonds issue in Feb-Mar-2013

In this week, there is wave of second tranche of Tax free bonds. PFC, HUDCO, REC, IRFCare launching second round (tranche) of tax free bonds,

Housing and Urban Development Corporation (Hudco) is targeting to raise up to Rs 2,805 crore through the second tranche of its public issue of tax-free bonds.

In the first tranche, which was closed on February 7 2013, the company had raised Rs 2,195 crore. The second tranche would open from Feb 21 and close on March 15.

The issue size is Rs 500 crore with an option to retain oversubscription up to Rs 2,805 crore

About the Company

HUDCO is a techno-financial institution engaged in the financing and promotion of housing and urban infrastructure projects throughout India. It was established on April 25, 1970 as a wholly owned government company with the objective to provide long term finance and undertake housing and urban infrastructure development programmes. HUDCO is a public financial institution under section 4A of the Companies Act and have been conferred the status of Mini-ratna. It has a pan-India presence through our wide network of zonal, regional and development offices.

For fiscal 2012, its revenue was Rs 2778 crores & Profit After tax was Rs 630 crore

Important Dates for HUDCO Tax free Bonds 2013 – Tranche II

  • Issue Opens on  21-Feb-2013
  • Issue Closes on 15-Mar-2013

Interest Rates 

The tradable tax-free secured redeemable non-convertible bonds of Rs 1,000 each in two series,

For Retail investors:

Series I – 10 years – coupon rate of 7.53%  (Pre tax yield upto 10.9%)
Series II – 15 years – coupon rate of 7.69%  (Pre tax yield upto 11.13%)

Qualified institutional buyers (QIBs), high networth individuals (HNIs) and corporates will get 0.50% lesser than above rates.

The interest earned will be exempt from tax under section 10 (15)(iv)(h) of the Income Tax Act, 1961.

Other Important Points

  • Minimum application for subscription in retail segment is of Rs 5,000
  • Maximum investment limit for retail investors is  Rs 10 lakhs
  • Investors can choose to apply in demat as well as physical form. Demat account is not mandatory
  • NRI Investment: Non-US NRIs can also invest in this issue. They can apply for these bonds both on repatriation basis as well as non-repatriation basis.
  • The allotment will be made on a “first-come-first-served” basis.

Tax Benefits

  • Interest from these Bonds shall not be included in total income of any person as per provisions of Section 10 (15) (iv) (h) of Income Tax Act, 1961.
  • Since the interest income on these Bonds is exempt from tax, no Tax Deduction at Source (TDS) is required.
  • Wealth Tax is not levied on investment in bonds under section 2(ea) of the Wealth-tax Act, 1957
  • The Bonds being listed with NSE shall be treated as a long term capital asset if they are held for more than 12 months and therefore  capital gains arising on the transfer of Bonds shall be subject to tax at the rate of 20% of capital gains calculated after reducing indexed cost of acquisition or 10% of capital gains without indexation of the cost of acquisition.

The issue is AA+ rated by Care and IND AA+ IRRPL

Enam Securities Pvt Ltd, ICICI Securities, Kotak Mahindra Capital Company and SBI Capital Markets are the lead managers to the issue.

Why invest:

  • It is a good issuance… People falling under the 30% tax bracket should invest in these bonds. On a pre-tax basis, the yield comes to about 11.19% which is quite good in current interest rate scenario.
  • Since interest rates are going down, subsequent tax-free bond issues could be at lower rates.

Why not to invest:

  • There is a Re-investment Risk on Interest earned on all such Tax free Bonds.
  • If you sell bonds in the secondary market, subsequent investors will get interest rates which are lower by 50 basis points. So the liquidity could be low. and you should hold this till maturity.

Potential Future Issues of Tax free Bonds

National Highways Authority of India, National Housing Bank, Ennore Port, Jawaharlal Nehru Port and Dredging Corporation are among companies permitted by the government to sell tax-free bonds.

Download the Form

You can download the Form from HUDCO Website.


Taxation Aspects of Tax FREE Bonds

Read my Post –  Taxation Aspects of Tax free Bonds?

Merits & Demerits of Tax free Bonds

Read –  Tax free Bonds – Should you invest in these?

Allotment Status of Tax free Bonds

Youc an check the Allotment status of Tax free Bonds application at link below by entering application number / PAN number:

HUDCO Rax Free Bonds – Tranche I Details –  Issue completed on 7-Feb-2013


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