T Rowe Price pays Rs 700 cr for 26% in UTI

The four sponsors of UTI Asset Management Company today signed an agreement with T Rowe Price, the US-based fund house, to offload 26 per cent stake for around Rs 700 crore.

State Bank of India, Life Insurance Corporation of India, Punjab National Bank and Bank of Baroda will divest 6.5 per cent each in the company. Subsequent to the sale, they will hold 18.5 per cent each in the country’s fourth-largest mutual fund company.

Sources close to the development told Business Standard that following the deal, T Rowe Price will route all its investments into India through UTI. In addition, in will invest in UTI Venture and the private equity funds floated by UTI. Further, the Indian fund house will get assistance in fund management and research as well as in the sale of its products abroad.

At the end of September 2009, the Baltimore-headquartered global investment management company had $366.2 billion in assets under management.

T Rowe Price’s acquisition values the fund house at around Rs 2,700 crore, which is around 3.5 per cent of the average assets under management (AAUM) of around Rs 76,847 crore at the end of September, the sources said.

The last deal in India, the acquisition of DBS Cholamandalan by L&T Finance, was at 1.56 per cent of AAUM. In August, Nomura had acquired 35 per cent in LIC Mutual Fund for Rs 800 crore, which valued the fund house at around 2.5 per cent of its AAUM.

The transaction is a part of the restructuring of the erstwhile Unit Trust of India, initiated in 2002, when the government split the country’s first fund house into two. While the one offering assured return schemes was ring-fenced into Specified Undertaking of UTI, UTI Asset Management Company inherited the market-based schemes. In addition, the two dozen sponsors were replaced by the four new sponsors.

Over the years, the sponsors, which have competing fund houses, have evinced interest in exiting or diluting their stake in UTI. Originally, an initial public offer and a private placement were planned to enable the sponsors to reduce their holding. But adverse market conditions last year forced UTI to alter the plan and rope in a strategic investor for the moment.

A formal announcement will be made once the Securities and Exchange Board of India approves the transaction.