New Delhi, July 7: The Housing & Urban Development Corporation ( Hudco) has decided to go in for the book-building process to determine the interest rate for its forthcoming private placement of bonds worth Rs 500 crore. The private placement is expected to hit the market later this month.

Earlier, Indian Petrochemicals Corporation (IPCL) had taken recourse to the book-building method for its Rs 400-crore private placement.

According to sources in Hudco, instead of levying any particular interest rate, book building will help decide interest offer on the basis of market expectations. ``This will be in the interest of both investors and Hudco,'' pointed out one Hudco official. The private placement from Hudco will be a mix of taxable and tax-free bonds. While taxable bonds will amount to Rs 400 crore, tax-free bonds will be to the tune of Rs 100 crore. Analysts point out that the interest rate is likely to be in the range of 12-13 per cent in the case of taxable bonds while it is expected to be pegged in the range of 9 to 9.5 per cent for tax-free bonds.

While earlier, the issue amount was to be equally split between housing and urban infrastructure, the entire amount will now go towards the housing sector. The minimum subscription for the issue is Rs 10 lakh and thus, clearly targets institutional investors. According to sources, banks are expected to lap up the issue since housing comes under priority sector lending.

Besides, the private placement is likely to offer demat option to bondholders. The bond will be listed on the National Stock Exchange. It may be recalled that Hudco's issue of infrastructure bonds in March this year was the first debt issue to offer demat option.

Meanwhile, Hudco has decided on a series of measures to encourage corporate participation in the housing sector. The cost of loans will be 9 per cent fort extremely weaker sections, 13 per cent for lower income groups and 15 per cent in other cases. The housing major has also decided to decentralise its operations and appointed AF Ferguson for restructuring. The report from Ferguson will help decentralise disbursement of funds.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.