Unit Trust Pitches To Manage Residual Govt Stakes In Divested Companies

Mumbai, December 22: | Updated: Dec 23 2002, 05:30am hrs
The Unit Trust of India (UTI) has suggested to the government that it be allowed to manage residual government stake in companies where the disinvestment process has been completed.

This important request was made to the Centre by UTI, since it feels that the move would add value to the governments stakeholdings in these companies. There are still quite a few firms in which the Centre retained substantial stakeholdings post-selloffs.

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New Delhi, December 22: The finance ministry will soon come out with policy guidelines to prevent a clash of interest between UTI-II and mutual funds of its sponsors which include State Bank of India (SBI), Life Insurance Corporation (LIC), Punjab National Bank (PNB) and Bank of Baroda (BoB).
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Confirming this to FE, a UTI official said: We have suggested that UTI be allowed to manage these holdings on behalf of the government. That can add value to them.

The UTI view is that if there is a spurt in prices of these companies, then, instead of just retaining these holdings in a passive manner, the government can then attempt to unlock value from them by selling these holdings, either wholly or in part, as the case may be.

The government is allowed to sell its residual stake in these companies, after the closure of the selloff transaction, after providing the strategic partner the right of first refusal.

The government still holds substantial residual stake in a number of divested public sector companies. For instance, it still retains about 33 per cent in Indian Petrochemicals Corporation Ltd (IPCL), 26 per cent in Videsh Sanchar Nigam Ltd (VSNL), 33 per cent in CMC Ltd and 26 per cent in IBP Ltd. There are others too, where the government holds sizeable stakes. These are large corpuses we are talking about. If we get one per cent management fees from the government, it is good business for us, a UTI official explained. The role UTI envisages for itself is that of an asset manager for the governments stakes, and will be paid a fee for that. As and when the government wants to sell those sizeable stakes to another party, it can inform UTI and instruct it to undertake the transaction.

But by managing these stakes actively, UTI reckons the government can unlock values from the market, should the prices look up from time to time.

However, there is another angle to the entire issue. The strategic partner may not be in favour of the government selling in the market, since that could expose the partner to threats from other corporate entities. Whether the Centre would be comfortable with selling part of its holdings in the market through UTIs asset management operations is, therefore, not yet clear.

The government has still not sold these stakes, since its view is that it is necessary for it to be present in these divested companies for some time to safeguard the interests of employees and keeping in mind other factors like allegations of asset-stripping against the strategic partner and other such issues.