Govt plans auction of 74% stake in UTI

Move aimed at ending tussle among shareholders over MF's control

The government is considering auctioning a combined 74 per cent stake held by four domestic banks in UTI Mutual Fund. The move is aimed at ending the tussle among domestic shareholders over control of the mutual fund.  

State Bank of India, Bank of Baroda, Punjab National Bank and Life Insurance Corporation of India have stakes of 18.5 per cent each in the mutual fund, while the fifth partner — T Rowe Price — has 26 per cent. Officials in the finance ministry said that the auction route was being considered as it would not favour any shareholder. “Whoever wishes to purchase the 74 per cent stake, including the foreign partner, can do so through this route,” said an official.

Industry players said that the government did not have too many options: It could allow a stake dilution through the initial public offering that T Rowe Price wants and make it a professionally managed company. Or, it could merge UTI with one of the four shareholders. The third option is to take the auction route so that the highest bidder becomes the majority shareholder.

Dhirendra Kumar, CEO, Value Research, said the auction option would be the right one because of transparency. “UTI is suffering from the problem of having too many parents due to which it wasn’t even able to get a CEO for two years. Clear ownership will help the company,” Kumar said.

However, it is unclear whether T Rowe Price would be interested in the auction option.

Securities and Exchange Board of India (Sebi) guidelines say a mutual fund sponsor should have at least 40 per cent stake in the company. But UTI was the only exception and the combined stake of all the four players were considered the sponsor’s stake — a fact the regulator was uncomfortable about.

Sebi chairman U K Sinha had said at UTI’s 50th anniversary function in February 2014, “When the bifurcation of UTI had happened, there was a feeling that the new institution should need very strong and robust ownership because of worries regarding a problem of confidence in the institution. However, in the spirit of the Sebi regulations, there is perhaps a need to revisit this. It (the four-sponsor model) was supposed to be a short-term measure but it has been going on for over a decade.”  

The ownership of UTI would be a bonanza, especially for SBI Mutual Fund, as it will become the top fund house, in terms of average assets under management. Others like LIC Nomura, Principal Mutual Fund and Baroda Pioneer will become fifth in the pecking order. In terms of profits and folios, UTI made Rs 170 crore in profits, more than any of the sponsor’s own fund houses. Also, its number of folios at 9.5 million is the highest in the industry.

In the past few months, three shareholders, SBI, LIC and BoB, have expressed interest in the asset management company. On the other hand, T Rowe Price prefers the IPO option in which dilution of 30-40 per cent stake can be done for a good price. “This would bring down everybody’s stake and make it a professional company. But it would not satisfy the 40 per cent sponsor model,” said an industry player. Industry players estimate that UTI Mutual Fund’s valuation would be at 5 per cent of assets or around Rs 4,400 crore.