With cash-rich PSUs opposing the proposal to buy back their own shares to help meet the fiscal deficit target, the government is mulling a new way to raise revenues. The plan is as follows: The government will first transfer its stakes in L&T, ITC and Axis Bank ? held through SUUTI, an offshoot of the erstwhile UTI ? to a newly-created asset management company (AMC), which will then borrow from banks to buy parts of government stakes in some PSUs.
Although details are yet to be worked out, sources said the AMC would seek clean loans from banks on the merit of its balance sheet. The combined value of shares held by SUUTI is estimated at a little over R32,000 crore. Earlier, there was a plan to sell blue chips held by SUUTI to raise money.
However, there are many hurdles in the way. While persuading capital-starved PSU banks to extend loans to the proposed government-owned AMC is an obvious challenge, there could also be legal issues surrounding the proposal to wind up SUUTI. As per the UTI Repeal Act, the SUUTI administrator can wind up the company only after discharging all claims and obligations for which it was formed.
?SUUTI has sizeable liabilities related on unpaid claims of UTI schemes,? a senior official said. Though there are no official statistics, some estimates peg liabilities at around R1,800 crore. SUUTI holds 11.54% in ITC, 23.6% in Axis Bank and 8.3% in L&T.
Sources said the law ministry has suggested setting aside about R2,000 crore for these dues and transferring the money to a bank account. The new company will maintain the account for the purpose of redemption of this liability. ?There can be problems in transferring SUUTI?s assets lock, stock barrel to a new entity. No one clearly knows its liabilities as there are no updated records,? an official said.
The government?s disinvestment target for the fiscal is R40,000 crore.
Meanwhile, banks involved in the process have also raised apprehensions citing exposure norms and sectoral limits. A senior banker told FE: ?Banks have limits on capital exposure. Also, we need to see what sectoral exposure we have right now to support this plan.? A bank can have a total exposure of up to 40% of its net worth to capital markets.
Within this, direct investment in shares, convertible bonds or debentures, units of equity-oriented mutual funds and all exposures to venture capital funds should not exceed 20% of net worth.
After meeting bankers last week, a government official said banks had proposed to give clean loans to the AMC, adding shares of these blue chips will form the equity base of the new company. However, against the original plan, banks are said to have advised the finance ministry not to pledge the shares of these three companies.
Punjab National Bank chairman KR Kamath has been assigned to talk to SBI caps, Bank of Baroda and Canara Bank to form a consortium to provide loan to the new entity.
The bankers are scheduled to meet the Department of Economic Affairs officials on Monday to finetune the contours of the loan and its obligations for the banks. The finance ministry is expected to put the proposal up for Cabinet approval by January.
SUUTI also holds immovable assets worth R200 crore, some of which is stuck in litigation. Although details of these cases are not known, the official said the new company will have to handle these cases besides its other liabilities.
The new AMC will be created with an authorised share capital of R10 crore and R1 crore as the paid-up share capital to be contributed by the government. The company will be entitled to all tax exemptions previously availed of by SUUTI.
Another issue which requires clarity is that fate of 500-plus employees of SUUTI subsidiary, UTIITSL. The government proposal will have to specify policy on these employees before forming the company.