Column: T Rowe Price’s dilemma

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SummaryBefore Edward Bernard, vice-chairman of the world’s sixth-largest investment firm T Rowe Price meets finance minister Pranab Mukherjee at the end of the week, he has to resolve his dilemma.

Before Edward Bernard, vice-chairman of the world’s sixth-largest investment firm T Rowe Price (it manages $510 bn in assets) meets finance minister Pranab Mukherjee at the end of the week, he has to resolve his dilemma. Should he carry on the four-month tussle with the finance ministry on who the next chief of UTI AMC will be (T Rowe Price owns 26% while government banks and financial institutions own the rest) or should he allow the finance ministry to have its way and appoint Jitesh Khosla, an IAS official who is the brother of the finance minister’s advisor Omita Paul?

As FE was the first to report on April 9 (http://www.financialexpress. com/news/uti-board-battles-finmin-over-new-chief/773849/), UTI AMC’s board appointed an HR sub-committee to help find a successor for UK Sinha when he left to head Sebi. The HR sub-committee, in turn, appointed global search firm Egon Zehnder to shortlist candidates—this was to be further screened by the sub-committee whose final recommendation would be sent to UTI AMC’s board. Though Khosla was not on this list that Zehnder gave after interviewing 30 candidates, the HR sub-committee members met Khosla but never recommended his name as he didn’t have the requisite experience—given UTI AMC has R67,189 crore of assets under management, a strong financial background is vital.

The finance ministry, however, is adamant on Khosla’s appointment which is why UTI AMC’s other shareholders—government-owned banks and institutions—are refusing to go along with what the HR sub-committee has recommended and are persuading T Rowe Price to settle this directly with the finance ministry.

Technically, Khosla can’t be appointed if T Rowe Price puts its foot down since its 26% shareholding gives it a veto right under company law in India. Apart from that, T Rowe Price can ask the US government to weigh in, even look at enforcing its rights through bilateral investment protection treaties that protect investors from being treated unfairly by any local government.

Attractive as that may sound, few of the solutions work if T Rowe Price is to continue to do business in India. A 26% shareholding in UTI AMC, for instance, means little and T Rowe Price would wish to raise its shareholding—indeed, at the initial stage, it was offered 49% but opted for only 26% as it was its first investment in India. The company has no hope of getting this through if it runs foul of the government. In which case, it looks as if the decks are clear for Khosla to get the top job at UTI AMC. It would be fun to see if this issue gets raised in the US where the finance minister is currently meeting investors to allay their fears!

The faceoff and its ultimate outcome, it turns out, symbolises the fear that investors are increasingly beginning to voice when it comes to investing in India—if this is what the government does to companies that are not even PSUs, imagine what it would do to PSUs. The R4,23,000 crore of subsidies the oil-PSUs have been forced to give over the last 8 years is a good example of what the government does with its PSUs.

The Cairn-Vedanta deal that the government refuses to clear unless Cairn agrees royalty payments made by ONGC can be set off as an expense is another example of this high-handedness (http:// www.financialexpress.com/news/column-why-ongc-says-vedanta-cairnt/ 772066/2) that has got investors spooked. There’s little doubt ONGC stands to lose money from the joint venture if it has to pay royalty on all of the production while getting just 30% of the profits from the JV. But the obvious question is whether a government should arm-twist a company on what is essentially a commercial dispute—after all, ONGC had signed the agreement which said it would pay all the royalty and if it feels Cairn is interpreting the agreement unfairly, it can always go to the arbitration court. Interestingly, the real culprit here is not ONGC the company—the deal was inked when ONGC was the Oil and Natural Gas Commission and a part of the oil ministry! So while most think the government is protecting ONGC’s interests, it is actually protecting its own backside.

The Prime Minister is reported to be planning a slew of reforms over the next few weeks to counter the view that the government is paralysed by the plethora of scam charges. While the non-reforms on oil last Friday were a dampener, all eyes are on the impending Cabinet reshuffle to know how serious the PM is. Given the constraints on the PM’s functioning, perhaps he’d do better to concentrate on the smaller procedural stuff like UTI and Cairn-Vedanta, more so since this is probably giving the government a worse name. Indeed, while the government is keen to foist a chief on UTI AMC which is not even a PSU, 13-14 PSUs like ONGC, HAL, OIL, TCIL and FACT haven’t had a full-time chief for several months; ditto for LIC!

sunil.jain@expressindia.com

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