The finance ministry is currently preparing a detailed note on the various possibilities and the critical issues associated with the restructuring process of UTI. The recast options also include creation of a separate company to bring the state-run mutual fund major in line with other mutual funds.
According to a senior finance ministry official, strategic sale will be different from that of other public sector units as UTI has no equity. The initial capital contributors, including Life Insurance Corporation, State Bank of India, and Industrial Development Bank of India, will have to be refunded their contributions, the official added.
In the event of the GoM favouring a strategic sale and the government deciding to implement its recommendation, the official said, a due diligence will take place, which will be followed by an internal valuation of the Trust and its various schemes. Thereafter, bids will be invited for strategic sale, he added.
The government, he said, will have to compensate UTI for losses in different schemes to make it attractive for bidders. Such a compensation package, the official admitted, is likely to attract criticism from various quarters. The official, however, said there is no legal hurdle in going in for a strategic sale as the Securities and Exchange Board allows sale of mutual funds.
The trifurcation option requires creation of a three-tier structure comprising a sponsoring company, one or more asset management companies, and a trustee.
Meanwhile, UTI has asked for over Rs 1,000 crore assistance from the government for meeting redemption pressure on account of the US-64 scheme during the current financial year. Ministry sources said the government is likely to provide only Rs 500 crore for this purpose through the first supplementary grant for this fiscal.
The US-64 is running a parallel administrative price regime for old investors. At present, the scheme is showing a huge gap between the current net asset value (NAV) and the guaranteed price.
Sources said UTI has calculated the requirement on the basis of current NAV of US-64 and it may vary during the course of the year. If needed, the government will provide additional funds, they added.
The government had extended Rs 300 crore to UTI to meet redemption pressure on account of US-64 during the past fiscal.