Company Overview

The Housing and Urban Development Corporation (HUDCO) Limited was incorporated on April 25, 1970 under the Companies Act 1956, as a fully owned enterprise of the Government of India. The establishment of HUDCO in 1970 as a sectoral institution for comprehensively dealing with the problems of growing housing shortages, rising number of slums and for fulfilling the pressing needs of the economically weaker section of the society was one of the significant steps in the series of initiatives taken by Government. Thus the setting up of HUDCO was aimed at accelerating the pace of construction and elimination of housing shortages and for orderly development of urban centres.

Business Analysis

HUDCO’s primary responsibility is to undertake housing and urban infrastructure development programmes in the country, provide long-term finance for construction of houses for residential purposes in urban & rural areas and finance or undertake, the setting up of the new or satellite towns and industrial enterprise for building material. Apart from its core activity, HUDCO has played a pioneer role in improving the sanitation conditions of the people across the country with viable & low cost sanitation options. As on December 31, 2011, a total number of 66,87,469 units were constructed or upgraded with tehno-financial assistance from HUDCO. Along with it HUDCO has also implemented various action plan schemes of the Government of India such as shelter up-gradation, night shelter and integrated low cost sanitation etc.

Company’s total income for the year ended March 31, 2011 stands at Rs 2,278.5 crore as against Rs 2,528.3 crore as on March 31, 2010. The net profit stood at Rs 550 crore as on March 31, 2011 as compared to Rs 495.3 crore for the same period last year.

 

The details of the offering (Tax free bonds) are as follows:

Issuer	Housing & Urban Development Corporation (HUDCO) Limited
Offering	Public issue of tax free, secured, non-convertible bonds in the nature of debentures having tax benefits under section 10(15) (iv) (h) of the Income Tax Act, 1961 aggregating to Rs 2,000 crore with an option retain oversubscription upto Rs 4,684.72 crore.
Security	The Bonds proposed to be issued are secured by a floating firet pari-passu charge on present and future receivables of our company to the extent of amount mobilized under the issue.
Face Value	Rs 1,000 per bond
Issue Price	At par (Rs 1,000 per bond)
Minimum Subscription	10 bonds and in multiples of 1 bonds thereafter
Tenure	Tranche-1 Series I: 10 years Tranche-1 Series II:15 years
Coupon rate	Tranche-1 Series I: 8.22% p.a. for category III investors and 8.10% for category I and II investors (see below for details) Tranche-1 Series II: 8.35% p.a. for category III investors and 8.20% for category I and II investors (see below for details)
Interest Payment	Payable annually
Trustee	SBI Capital Trustee Company Ltd.
Listing	BSE & NSE
Depository	National Securities Depository Limited and Central Depository Services Limited
Registrars	Karvy Computershare Private Limited
Issuance	In dematerialized form and physical form
Issue Open Date	January 27, 2012
Issuance	Demat form or Physical form as specified by the applicant in the application form
Issue Close Date	February 06, 2012
Deemed Date of Allotment	Deemed Date of Allotment shall be the date on which the Directors of the Company or any committee thereof approve the Allotment of the Bonds for each Tranche Issue.
Deemed Date of Allotment	Deemed date of allotment shall be the date of issue of the Allotment Advice / regret.
Eligible Investors	Category I	Category II	Category III
	Public Financial Institutions, Statutory Corporations, Scheduled Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the Bonds; Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorised to invest in the Bonds; Insurance companies registered with the IRDA; National Investment Fund; Mutual Funds; Companies; Bodies corporate and societies registered under the applicable laws in India and authorised to invest in the Bonds; Scientific and/or industrial research organisations, which are authorised to invest in the Bonds; Partnership firms in the name of the partners; and Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008.	Investors applying for an amount aggregating to above Rs 5 lakhs across all Series in each tranche   Resident Indian individuals; Public/private charitable/religious trusts which are authorised to invest in the NCDs Hindu Undivided Families through the Karta	Investors applying for an amount aggregating to upto and including Rs 5 lakhs across all Series in each tranche   Resident Indian individuals; Hindu Undivided Families through the Karta

Note: PAN card is mandatory for subscribing to these bonds. A self-attested copy shall be enclosed along with the application form.

 

Investors (across all categories) will also have the following options available at the time of subscribing to the issue:

Tranche-1	Series I	Series II
Minimum Application/ Face Value	Rs 10,000	Rs 10,000
In Multiples of	Rs 1,000	Rs 1,000
Tenor	10 years	15 years
Interest Payment	Yearly	Yearly
Coupon rate (category III)	8.22%	8.35%
Coupon rate (transferee / category I & II)	8.10%	8.20%
Yield on Redemption (category III)	8.22%	8.35%
Yield on Redemption (transferee / category I & II)	8.10%	8.20%

(Source: Draft prospectus registered with SEBI & PersonalFN Research)

 

Well, after reading the details of the tax free bonds (as provided above), there may be still some more questions cropping up, which are answered hereunder:

.

• Is there a lock-in period for these bonds?
  
  No, these bonds do not have any lock-in period. The bonds would be traded onto recognised stock exchange and thus can be purchased and sold at the prevailing market prices on the exchange. If one wishes to hold until maturity, then the redemption would be made by the issuer.
   
• Is interest on these bonds Tax Free?
  
  Yes, the interest which one will earn would be exempt from tax.
   
• Will TDS be deducted from the interest payment?
  
  These bonds are tax free and hence not subject to TDS.
   
• Is demat account mandatory to invest in tax free bonds?
  
  The bonds can be held either in demat or physical form. But if one wish to trade onto the exchange, then it can happen only via demat mode.
   
• Are investments in these bonds eligible for deduction u/s 80C?
  
  The sum invested in these bonds is not eligible for any deduction under section 80C, 80CCF or 54EC. Hence, no deduction benefit is avail while one invests money into these bonds. However, as mentioned earlier the interest which you enjoy will be fully exempt from tax, and therefore no TDS will apply as well. However, capital gains on these bonds are taxable like normal corporate bonds.
  
  Thus, if the bonds are sold within one year of the date of purchase, the short-term capital gains arising would be subject to tax at slab rates. Similarly, if the capital gains are made after a holding period of one year, long term capital gains will be applicable at 20% with indexation benefit or 10% without any indexation benefit.
   
• Can a minor apply to these bonds?
  
  Yes, a minor can apply for these bonds, but only and only through a guardian.
   
• Can one apply in joint names?
  
  Yes, one may apply in a joint name. However, the demat account will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
   
• Who will get the interest in case of joint application?
  
  In case of joint application, interest will be accounted to the first holder only.
   
• My demat account is in joint name, but I want to apply is a single name?
  
  In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
   
• If I’m an NRI can I invest in these bonds?
  
  No, NRIs are not eligible for investing in these bonds (offered by HUDCO).
   
• Whether an applicant applying in the first day of opening of the issue is assured of allotment?
  
  The issue will remain open for at least 3 days. If the issue is over-subscribed within this period, the applicants will receive allotment on pro rata basis. Thus investors who have applied during this period will receive at least some allotment. If issue extends beyond 3 days, the applicant in first 3 days will receive full allotment.
   
• In whose favour the cheque is to be made?
  
  Cheques/Drafts have to be made in the favour of ‘HUDCO Tax Free Bonds- Escrow Account’.

 

OUR VIEW:

In our opinion these tax-free interest bonds provide an excellent investment opportunity as the coupon offered under both the series is quite attractive. The ratings accredited to the bonds are a notch below the prime rating of AAA, i.e., AA+ which is stable. However, the company provides a slightly higher rate to compensate the slightly low ratings. Also the listing and trading of the bond (on BSE and NSE), facilitates a liquidity window to investors as one can exit even before the maturity / redemption date of these bonds, but as said earlier one need to hold these bonds in a demat mode. But HUDCO has smartly introduced the step-down feature which states that any buyer in the secondary market will only get non-retail (HNI and QIP) investor rate. The step-down feature is obviously to encourage serious investors to subscribe for the issue instead of trying to make a quick buck by swiftly selling it in the secondary market.

 

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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Comments
thierry@thierryroche.com Feb 24, 2012 Jefferson County was $3.2Billion! Not a very small county default second largest after somewhere in Cali last year. VERY scary. If there is a bankruptcy and it goes smoothly I believe it will be a domino effect

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