Housing & Urban Development Corporation set to hit the market with Rs 1,710 crore tax-free bonds

MUMBAI: State-owned Housing & Urban Development Corporation (Hudco) is set to hit the market with Rs 1,710 crore worth of tax-free bonds. But the issuer may have to go the extra mile to woo investors as the bonds will offer interest rates a few basis points lower ranging between 7.27% to 7.64% than the earlier bond sales offered by the Indian Renewable Energy Development Agency.

The issue will open for subscription on January 27 and is expected to close on February 10. While the 10-year bonds offer 7.27% rate, investors can earn 7.64% from bonds with 15-year maturity, people familiar with matter told ET. Hudco could not be contacted for comments immediately.

"Hudco will try to gain investor confidence from its rating upgrade to triple-A from AA+ earlier," said Ajay Manglunia, executive vicepresident, Edelweiss Securities. "The ongoing tax season towards the end of the financial year will draw investors despite the overwhelming response in the past issues where most were oversubscribed on the day of opening."

With the new government benchmark bond, which is now yielding 7.66% or 12 basis points lower than the old series now, tax-free bonds are priced in sync with the sovereign bond yield.

"Amid market turmoil, investors are now turning risk-averse," said Vikram Dalal, MD of Synergee Capital. "Hence, wealthy investors will increasingly look at taxfree securities backed by sovereign support." Interest earned on such bonds are tax free.

Hudco was allowed to sell tax-free bonds worth Rs 5,000 crore. The company has already raised some money through private placement. This is the first time this year that it is coming out with a public issue, and there will be another round of public issue expected in February or March.

Seven state-owned companies have been mandated to raise Rs 40,000 crore by selling tax-free bonds in the financial year ending March 31.

A few months ago, state-run firms IREDA, NTPC, NHAI, Power Finance Corporation, Rural Electrification Corporation, Indian Railways Finance Corporation have together sold bonds worth about Rs 17,000 crore through tax-free issuances which were oversubscribed multiple times.

Those securities offered tax-free interest rates ranging between 7.14% to 7.74% across maturities of 10, 15, and 20 years. These papers are considered to be as safe as bank fixed deposits, which are now yielding between 6% to 6.70% across maturities after tax.

SOURCE: ETRealty.com