India is the second most populous country of the world and ranks only next to China. However, it has witnessed slow growth in urbanisation so far. However, as per the estimates of Planning Commission, India is now all set to witness an unprecedented growth in urbanisation. Thriving employment opportunities in urban areas would act as a catalyst to expansion of cities. India's urban population may double over next 20-25 years. Rapidly growing population puts tremendous pressure on systems and urban infrastructure.
To promote urban development, Housing & Urban Development Corporation Ltd. (HUDCO) was incorporated on April 25, 1970 under the Companies Act 1956. It is a public sector company fully owned by Government of India which has been awarded the status of Mini Ratna in 2004-05. It provides long term finance for construction of residential houses, satellite town set-ups and industrial enterprises of building material. It also provides consultancy services to the projects of designing and planning of works relating to Housing and Urban Development programs in India and abroad.
HUDCO has planned to raise Rs 500 crore by issuing Tranche II tax free bonds. The company intends to utilise the money raised through the Issue of bonds for the purpose of debt servicing, statutory payments, establishment and administrative expenses, working capital requirements, and any other purposes allowed by RBI.
Business Profile
HUDCO has a PAN India presence and provides financial assistance nearly in 33 states and 1835 cities. It works towards achieving an objective of housing for all. HUDCO provides financial assistance to individuals under its flagship housing loan schemes - HUDCO NIWAS. It plays a key role in implementing action plan schemes of Government of India such as shelter up-gradation, night shelter and integrated low cost sanitation etc. It also grants assistance to create model villages and slums in each state. Besides financial assistance HUDCO also provides integrated inputs of physical planning, architectural design, efficient utilization of land and appropriate technologies ensuring user participation, use of innovative /renewable sources of energy to name a few. It also promotes the use of alternative building materials and appropriate technology to ensure quality affordable housing. In FY 2012-13, the company provided financial assistance to around 140 schemes. It sanctioned loans worth Rs 23, 974 crore for projects such as housing, core infrastructure, social infrastructure, energy, urban transport, industrial estates etc. It has a balance sheet size in excess of Rs 25,000 crore.
Highlight of the Issue
| Issuer |
Housing and Urban Development Corporation Limited |
| Issue Size |
Rs. 500 cr (Base Issue Size) with option to retain oversubscription upto the shelf limit (being Rs. 2439.19 cr) |
| Nature of the issue |
Public issue of the tax free bonds of face value of Rs 1,000 each, in the nature of secured, redeemable and non-convertible debentures having benefits under section 10(15)(iv)(h) of the Income Tax Act. |
| Credit Rating |
"CARE AA+" by CARE and "IND AA+" by IRRPL |
| Issue Opens |
December 2, 2013 |
| Issue Closes |
January 10, 2014 |
| Issue Price |
Rs 1,000 each bond |
| Tenure |
10 years, 15 years and 20 years from the Deemed Date of Allotment |
| Coupon rate |
Tranche II-Series 1A- 8.51% p.a.; Series 2A- 8.58% p.a.; Series 3A- 8.76
(For Category IV) Tranche I-Series 1B- 8.76% p.a.; Series 2B- 8.83% p.a.; Series 3B- 9.01% p.a. |
| Interest Payment |
Annual |
| Min. Application |
5 Bonds (Rs 5,000) and in multiples of 1 bond thereafter |
| Mode of Holding |
Issuance in both Physical or Dematerialised form but trading in Dematerialised form only |
| Listing |
BSE. The bonds would be listed within 12 working days from the issue closure date |
| Depositories |
NSDL and CDSL |
| Debenture Trustee |
SBICAP Trustee Company Limited |
| Registrar |
Karvy Computershare Private Limited |
| Quota |
upto 30% of overall issue size* for category III investors and upto 40% of overall issue size* for category IV investors |
Category III
(Individuals & HUF applying more than Rs. 10 Lakh) |
The following Investors applying for an amount aggregating to above Rs 10 lakhs across all Series of Bonds in each Tranche Issue:
- Resident Indian individuals;
- Eligible NRIs on a repatriation or non - repatriation basis;
- Hindu Undivided Families through the Karta; and
- Eligible QFIs, being individuals.
|
Category IV
(Individuals & HUF applying upto Rs. 10 Lakh) |
The following Investors applying for an amount aggregating to up to and including Rs 10 lakhs across all Series of Bonds in each Tranche Issue:
- Resident Indian individuals;
- Eligible NRIs on a repatriation or non - repatriation basis;
- Hindu Undivided Families through the Karta; and
- Eligible QFIs, being individuals.
|
(*on first come first serve basis determined on the basis of date of upload of the Applications on the electronic Application platform of the relevant Stock Exchange(s))
(Source: Issue Prospectus, PersonalFN Research)
OUR VIEW:
In our opinion HUDCO tax free bond provides a good investment opportunity as the rates offered are quite decent. Moreover, there's no restriction on a bondholder to hold bonds mandatorily for a particular period of time. Investors may sell or buy these bonds anytime on the exchanges. Hence investors need not worry much about liquidity in case of immediate need for funds.
The ticket size has been purposefully kept lower for greater retail participation and thus it is well within the reach of retail investors. Further, the quota of 40% reserved for retail investors enhances the chances of getting allotment.
For a person who invests as a category IV investor (i.e. those who invest less than or equal to Rs 10 lakhs) and falls in the maximum tax bracket, gross pre-tax yield is 12.7%, 12.8% and 13.0% for bonds with maturity profile of the series 10 years, 15 years and 20 years respectively. Considering the risk one is exposed to, coupons offered by HUDCO (when clubbed with tax exemption benefit) are satisfactory. We believe that HUDCO tax free bond is an attractive offering considering the rating profile of the issue and competitive yield (compared to post tax yield on other fixed income instruments) for those in the maximum tax bracket. Considering the present interest rate scenario, it would be prudent to invest in the bond option with a maturity profile of 10 years. However investors, who have a longer investment horizon and seek a higher interest rate, may consider investing in bond options with maturity profile of 15 years or 20 years.
In case you wish to invest in the above instrument, you can email us at info@personalfn.com or contact us on 022-6136 1200
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