SBI, LIC may exit UTI AMC

State Bank of India (SBI) and Life Insurance Corporation (LIC) are discussing a proposal with the government to exit UTI Asset Management Company, the country's fourth-largest mutual fund.

The two institutions hold half the AMC's shareholding. Bank of Baroda and Punjab National Bank hold the rest.

UTI AMC is already planning a capital restructuring under which a new strategic investor will buy 26 per cent from the four shareholders, which will see their shareholding drop to 18.25 per cent each.

Subsequently, if the government agrees, SBI and LIC may be allowed to exit UTI completely.

“The issue is being discussed with the government but no decision has been taken. UTI is looking to finalise the sale of 26 per cent stake to a strategic investor by the end of July and only then the new shareholding structure will be decided,” said a source privy to the discussions.

LIC and SBI have their own asset management companies — LIC Mutual Fund and SBI Mutual Fund — that compete with UTI, in which they acquired 25 per cent in 2003 when the AMC's operations were restructured. Before that, SBI and LIC and a host of public sector banks and insurance companies held smaller stakes.

Meanwhile, as part of their strategy to strengthen their own mutual fund arms, SBI has already roped in Societe Generale as a shareholder in SBI Mutual Fund and LIC is close to signing a deal with Nomura for a 35 per cent stake sale.

Besides, executives at LIC and SBI said that despite the fall in valuations over the last 12 months, the two sponsors would be able to realise a gain on their investment made in 2003. Also, as the market shows signs of revival, a stake sale holds out prospects of better valuations, said a source.

In addition, the new 26 per cent shareholder will have veto powers over the AMC, whereas the existing sponsors will see their shareholding shrink. The valuation exercise for the strategic sale is underway, a UTI executive said. Typically, asset management companies are valued at 5 to 6 per cent of their assets under management.

Though the recent market rallies and success of various primary market issuances indicate that the investors are gradually regaining confidence, market experts believe that any AMC may have to wait longer for better prices for the IPO.

At the end of May, UTI AMC had average asset under management (AAUM) of Rs 63,438 crore against Rs 54,652 crore at the end of May 2008, representing a 16 per cent increase over the last 12 months. It accounted for 9.92 per cent of the mutual fund industry. Reliance Mutual Fund is the largest player in the business with AAUM of Rs 1,02,730 crore.