UTI MF's public shareholders seek time to meet cross-holding norm

The four public shareholders of UTI Asset Management Company (AMC) have sought more time to comply with Securities and Exchange Board of India’s (Sebi’s) 10 per cent cross-shareholding norm, the deadline for which is to end in March.

According to sources, the investors have requested a year’s extension from the market regulator.

Under the cross-shareholding norms, a single entity cannot hold more than 10 per cent in more than one AMC. The rules are to prevent potential conflict of interest and strengthen the governance structure of mutual funds.

The four Indian principal sponsors of UTI AMC – Life Insurance Corporation (LIC), State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) – are required to prune their holding from 18.25 per cent to 10 per cent each, to comply with these norms. 

All the four shareholders operate a separate mutual fund subsidiary. UTI AMC’s foreign shareholder T. Rowe Price owns the remaining 26 per cent.

“Public shareholders are working out a plan that favours all stakeholders and the AMC. The plan is to monetise their stakes through the proposed initial public offering (IPO) or through a private placement route. However, it looks difficult to comply within the given deadline as stipulated by Sebi,” said a person privy to the development.

Sources said if four of the entities were to dilute their stakes in the current scenario, their stake could be undervalued. The combined dilution required if the four stakeholders have to achieve compliance is nearly 33 per cent.

The market regulator may not give blanket exemption and could ask the sponsors for partial divestment by March next year, said another person.

An email sent to LIC, SBI, PNB and BoB last week remained unanswered.

Meanwhile, the four sponsors have their own set of issues. A common concern for the four is they want T Rowe also to cut down its stake in UTI AMC. However, the regulator had clarified that the cross-shareholding norm is applicable only to domestic firms. Another issue is that two of the principal sponsors are also exploring the option of acquiring UTI AMC and merging it with their own mutual fund arms. However, nothing concrete has been decided yet.

The differences between the four public shareholders and T Rowe Price had been in the spotlight over extension of the tenure of former managing director and chief operating officer Leo Puri. 

The four domestic shareholders were not in favour of extension. Representatives of the public sector stakeholders were of the view that UTI AMC’s performance was on a downward spiral since Puri had taken charge. Furthermore, the fund house had lost market share as growth in its asset base had been below the industry average.

Meanwhile, concerned over the AMC’s affairs, such as board composition and its long-pending IPO, T Rowe Price had move the court against the four public shareholders. However, T Rowe withdrew its case based on the finance ministry's and regulator’s assurance that the IPO is on track and will be launched in due course of time.

Sources said the foreign fund house is disappointed as it believes that the shareholders are still not taking corrective measures to resolve the matter, said the person cited above.