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Wednesday, 1 February 2012

IRFC and Hudco Bonds collect over Rs 10k Crore

Tax-free bond issues of Indian Railways Finance Corporation (IRFC) and Housing and Urban Development Corporation (Hudco) saw reasonably good collection on the first day. Both issues made a combined collection of around ~10,500 crore, according to lead managers and market participants.

IRFC, which has been rated AAA by Fitch, collected around Rs 8,000 crore. Lead managers said the portions for qualified institution buyers (QIB) and high net worth individuals (HNIs) were fully subscribed, while the portion for retail investors did not see much action on the first day. IRFC is raising ~3,000 crore, with an over-allotment option ~3,300 crore.

Enthusiasm for the Hudco issue was slightly muted. It collected around ~2,500 crore. The portion for QIBs collected ~1,700 crore, the portion for HNIs ~2,400 crore and retail investors put in ~250 crore. Hudco aims to collect ~2,000 crore, with an over-allotment option of ~2,684 crore.

Investors are still waiting for refunds from the National Highways Authority of India (NHAI) issue. And, among the two, IRFC is being preferred by investors because of a higher rating," said a lead manager. CARE has rated Hudco AA+.

The NHAI issue collected a little over ~25,000 crore. On the first day, both the QIB and HNI portions were subscribed.

A total of ~15,000 crore was yet to be refunded. The two banks refunding the majority of the money are Axis Bank and HDFC bank. While Axis Bank made the refunds today, it may not have shown on the accounts of many customers today. HDFC bank is expected to make the payments tomorrow. Arrangers are hopeful of better flows in the next week.

While IRFC is offering 8.15 per cent for 10 years and 8.30 per cent for 15 years to retail investors, Hudco is offering 8.22 per cent for 10 years and 8.35 per cent for 15 years. For QIBs and HNIs, IRFC is offering eight per cent and 8.10 per cent for 10 and 15 years, respectively, while Hudco's coupon rate is 8.10 per cent and 8.2 per cent. Last month, NHAI and PFC had offered coupon rates of 8.2 per cent 8.3 per cent for all investors.

In both the issues, 30 per cent has been reserved for retail investors, 25 per cent for HNIs and 45 per cent for QIBs. Both the issues carry an additional condition of a stepped-down coupon rate in case retail investors sell the bonds in the secondary market. At present, investors do not seem comfortable with this condition.

There was a likelihood that investors from other categories would buy the bonds in the secondary market to avail of the difference in the interest rates. The issuers had a condition to prevent such a practice and ensure the advantage was for only retail investors. The last date for subscription for IRFC's tax-free bond issue is February 10, and that for Hudco is February 6.
 

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