There?s an eerie calm when one walks into the portals of the Unit Trust of India (UTI) headquarters in south Mumbai these days. After the frenetic activity preceding the announcement of the UTI “restructuring” package, these days there?s a sense of resignation within the portals of the institution. What started off as an effort to get the institution back on its feet has ended up with UTI being unrecognisably changed. The government has decided to split it into two — one will be a “sick box” where medicine will be “administered” (hence the appointment of an administrator, one assumes) and the other, the healthy part, will be “professionally managed” and eventually privatised.
The UTI recast raises some interesting questions. No matter how many schemes UTI had, the institution was essentially known to the smallest investor because of its flagship scheme, US-64, which is now clearly diagnosed as a disease by North Block mandarins. All kinds of signals are being sent out of the finance ministry on US-64 — no asset bleeding, tax sops and what have you. And, of course, an overall tab of Rs 14,500 crore plus which will be picked up by government. Now consider some hard facts.
By splitting UTI into UTI-I and UTI-II, the strength of the combined entity will, needless to say, be a thing of the past. For instance, if UTI-I gets a very attractive offer for its holdings in any stock (and assuming North Block allows it to sell), it would no longer be able to pool its holdings to garner the best possible price because it will have no say in what UTI-II does with the same stock.
Now take the other side: UTI-II. The finance ministry?s assumption is that people would be lining up to pick up UTI-II when it is up for sale. In reality, things may be a bit different. For one, unless the Securities and Exchange Board of India (Sebi) changes the rules just for this recast, any existing Indian entity which has an asset management company (AMC) locally, will not be able to buy UTI-II because the same entity cannot have two AMCs. Hence, unless the entrant is a foreign entity without an existing Indian AMC, there?s no question of buying out UTI-II as an entity: all it can do is buy UTI-II?s schemes. And therein lies another catch. Whoever buys UTI-II schemes will naturally not want to buy out the whole lot. He would be choosy, concentrating on the better performing ones among the lot. And this itself would tend to reduce the value the government can get from this sale.
Besides, any potential buyer would look at UTI-II also from the point of view of accessing the massive investor database that UTI has. But the irony is, that database is essentially of US-64, which will remain with UTI-I. The sales force of UTI agents has, for decades, mainly been selling US-64 to millions of investors. If the bidder wants to take the benefit of the sales force, that?s also with UTI-I. Simply put, despite being a sick box, greater value for the bidder would actually lie in UTI-I, which is not being privatised!
UTI-II, the finance ministry has said, will have a professional management, since it is the healthier unit. But it may be worthwhile also to see how the present UTI management, headed by a serving IAS officer, has fared. A recent quarterly performance analysis by Value Research has shown that of 21 UTI equity schemes, 14 are in the first quartile, four in the second quartile, three in the third and none in the fourth. In other words, two-thirds of UTI?s equity schemes figure in the top 25 per cent of the funds whose performances have been evaluated. Most of the private sector funds, which most think are better managed than UTI, have a presence in the fourth quartile or the worst 25 per cent. On the debt funds side too, UTI has only one out of nine funds in the fourth quartile. The name of that fund: US-64. Maybe the government would do well to appoint an IAS officer to head UTI-II as well!