Seven years after it was brought in to rescue UTI, US investment firm T Rowe Price is all set to see its rights being curtailed, with the balance of power shifting to government-owned financial institutions. T Rowe Price was sold a 26% stake in UTI mutual fund in 2010 and brought in by the government as a strategic investor after the US-64 collapse. Four government-owned institutions were sold an 18.5% stake each.
Last year, after UTI’s Board was in favour of it, the government gave the mutual fund the go-ahead for an IPO. That would have allowed UTI’s government shareholders — LIC, SBI, Punjab National Bank and Bank of Baroda — to sell their stakes and, in the case of the banks especially, use that to shore up their balance sheets. T Rowe Price would also have seen a dilution in its post-IPO stake.
While a 30-40% IPO was initially planned, the government is now keen on just a 10% dilution, 2% for each shareholder. With this, T Rowe Price’s shareholding will fall below the 26% level required by Indian law to block special resolutions, while the government-owned financial institutions will own a 66% stake — this allows the government to dictate the agenda, with T Rowe Price unable to stop any change. A larger dilution would have brought government-shareholding in UTI via the financial institutions to below 51% and paved the way for a genuinely board-managed fund.
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Under normal circumstances, this wouldn’t matter, but UTI has been subject to many boardroom battles after then chairman UK Sinha quit to take over as Sebi chief. At that point, the finance ministry tried to push its nominee as UTI’s CMD even though he did not have the requisite credentials — a board-nominated selection process, headed by international search firm Egon Zehnder, had given a different short-list for the board to consider. As a result of this conflict, UTI remained headless for two years.
In such a situation of board-level conflict, it is not clear why new investors would want to buy into the mutual fund.
Later, SBI tried to take over UTI by proposing a share swap since this would have pushed it to the top slot in the industry from the 5th position right now. LIC also pushed for a takeover, by buying out the other stakeholders — this would allow LIC to move to the 5th position.
Under Sebi rules, no investment firm can own more than one asset management company (AMC). While all the government institutions have their own AMCs, they were given a waiver by Sebi, possibly because they were seen as stop-gap owners, brought in after the government wanted to safeguard the UTI mutual fund after US-64 by splitting it into a ‘good UTI’ and a ‘bad UTI’.