Sebi Audit Slams Uti Role In Reliance Pvt Placement

The report already put up to the finance ministry has virtually slammed the door on UTI, maintaining that the Rs 1,000-crore deal violated all basic investment norms.

Among other things, the audit report highlights that UTI ignored objections raised by ICICI in the entire deal and even violated the mutual fund norms detailed by Sebi. It maintains that the transaction is nothing but a case of "bottom-line management" indulged in by UTI.

The report drafted by the audit firm, Chhajed & Doshi, is still being reviewed by the ministry and is yet to be put up for the finance minister's scrutiny, say top Sebi officials. This audit firm was nominated after the UTI auditors, Shailesh & Haribhakta, refused to take up the job on the grounds that they had done some business for Reliance.

 

The private placement of Rs 1,000 crore (which also entailed a five-year lock-in) was carried out ostensibly to finance the ONGC-Reliance gas cracker project. ICICI, which had reviewed the project, had pointed out that the projections given by the company did not take into account the tax deferral.

Once this tax deferral was taken into account the earnings per share (EPS) declines from the projected Rs 13 to Rs 7.8, the audit report quotes from the ICICI review. The report then outlines that the returns to UTI (which accounted for the bulk of the private placement) for this investment worked out to a mere 1.2 per cent.

The funds for this investment were put up from the US-64 scheme. Since the annual pay-out under this scheme worked out to about 26 per cent on the average, the investment carried out by UTI had a negative fall-out on the fund, the note said.

Interestingly, UTI has defended the deal, saying, "the investments were made with the approval of the Board of Trustees and well within the prudential guidelines laid out in the UTI Act and the UTI General Regulations. Also the investments adhere to the Sebi guidelines on such investments."

The report comes at a time when the CBI is seeking the government's permission to prosecute officials of GIC, LIC and UTI involved in the private placement deal. It is not yet clear whether the finance ministry has given its nod for the prosecution. The CBI had approached the previous finance minister Jaswant Singh for clearance. Singh had deferred the decision as the BJP government had not won the confidence vote.