T Rowe Price may exit UTI AMC

Unhappy at govt decision on chairman; FinMin tells PSU shareholders to be prepared to fill vacuum.

The public sector shareholders of UTI Asset Management have been asked to be prepared for an exit by the largest shareholder, T Rowe Price. The US-based asset manager, which holds 26 per cent in the fund house, has been protesting at the appointment of an IAS officer without enough fund management experience as the company’s chairman.

“We have been told (by the government) to keep the show running in case of any such exit. We don’t expect much to change, even if it happens. In fact, the assets under management have only declined since they invested,” said an official with one of the shareholders.

Responding to an elaborate email questionnaire on the stand taken on the chairman’s appointment and future course of action, including exit options, Edward F Giltenan, a spokesperson for T Rowe Price, said, “We respectfully decline to comment.”

In January 2010, T Rowe had taken 6.5 per cent each from the four sponsors — State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation — for Rs 650 crore.

Typically, in such deals, the share purchase agreement provides for a right of first refusal.

Accordingly, the exiting shareholder would have to first offer the shares to the remaining shareholders. If they decline, the seller can explore options, such as buyback by the company or secondary sale to a new investor.

When T Rowe bought stake in early 2010, the fund house was managing Rs 78,203 crore and was the fourth-largest manager by assets. It has since slipped to fifth spot, with assets of Rs 62,579 crore this September.

The finance ministry has initiated steps to get board seats for representatives of the government shareholders. There are also indications that T Rowe may be asked to withdraw one of the two directors it has on the UTI Board. Two independent directors (IDs) have already given their resignations. Media reports said three other Ids had also given their resignations .

A former senior officer of UTI AMC who has been watching the developments closely said, “T Rowe’s situation looks difficult. They can neither spit nor swallow. As far as other shareholders are concerned, they do not have any strategic interest in the company. They had each invested around Rs 250 crore and are getting a dividend.”

The four public sector shareholders, which have 18.5 percent each in UTI, own and run separate mutual funds.

“Even if they want to take active part in the management, there is an issue of conflict of interest. Therefore, their interest in UTI is purely financial,” the ex-official added.

UTI had been headless for nine months since the last incumbent, U K Sinha, quit to take over as chairman of the Securities and Exchange Board of India. A similar delay happened after M Damodaran left to join IDBI Bank.