A tax-free bond Housing and Urban Development Corporation (Hudco) issued a fortnight ago has elicited poor response, prompting the government-owned entity to think of relaunching it with higher coupon rates.

According to market players, the collections after the issue opened on September 29 were just around Rs 10-20 crore in the first round that closed on Wednesday.

The urban infrastructure company had, after getting the approval from Central Board of Direct Taxes, offered tax-free bonds at coupon rates of 7.51 per cent for 10 years and 7.75 per cent for 15 years.

According to norms, the coupon rates are linked to the government bonds closing yield at the end of the previous month.

The issue opened on a day when yields on the 10-year benchmark government bond jumped 9 basis points to settle at 8.44 per cent. This implies that the issuances in October will offer higher coupon rates, says a bond dealer with a domestic brokerage. Hence investors have opted to wait.

The 1970-incorporated Hudco on Wednesday said the aim was to raise Rs 100 crore in the first round. It is still optimistic.

With better coupon rates in the second round, we are expecting better response, said R K Khanna, the companys executive director (resource mobilisation).

He declined to comment on the total amount raised in the first round. The company can raise up to Rs 5000 crore via sale of tax-free bonds this financial year.

Based on the annualised closing yield of September, the company will now offer 7.62 per cent for 10-year bonds and 7.83 per cent for 15-year bonds via private placement.

The coupon rates on tax-free bonds should not be less than 100 basis points lower than the annualised closing yield on government bond of previous month.