A broad agreement appears to have been reached on the issue of UTI Asset Management Company’s initial public offering and though the size of the issue has not been agreed on, the draft board resolution circulated to shareholders after the board meeting talks of a “broad-based” issue.
A broad agreement appears to have been reached on the issue of UTI Asset Management Company’s (UTI) initial public offering and though the size of the issue has not been agreed on, the draft board resolution circulated to shareholders after the board meeting talks of a “broad-based” issue. Once the shareholders send their formal letters of approval to UTI, the IPO process will kick off. In the past six years since the boardroom battles began at the mutual fund after UK Sinha stepped down as UTI chief to head the Securities and Exchange Board of India, it has lost its fourth position and moved to its current sixth rank in terms of assets under management (AUM).
UTI’s total AUM as in the October-December 2016 quarter was around Rs 1.29 lakh crore. Currently, ICICI Prudential AMC and HDFC AMC enjoys the top two position and have AUM of Rs 2.27 lakh crore and Rs 2.21 lakh crore, respectively. Reliance AMC, Birla Sun Life AMC and State Bank of India MF are currently ahead of UTI AMC in terms of AUM as of the October-December quarter.
In Wednesday’s board meeting, shareholders spoke of how Sebi rules do not allow anyone to own more than one AMC — after the US-64 debacle when SBI, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India (LIC) were asked to buy into UTI, they were given a one-time waiver since they run mutual funds of their own.
LIC, however, is still said to be in favour of buying out the other three PSU institutions’ share. SBI, which till last year was keen on getting control of UTI through a share swap, has agreed to back the broad-based IPO. Typically in the mutual fund industry valuations are based on AUM and experts believe that with UTI they can be valued at anywhere between 5% and 6% of AUM. So currently, with the AUM of the October-December quarter, UTI AMC could be valued at around Rs 6,450 crore.
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The finance ministry, however, has indicated that it is in favour of a 10% issue for purposes of price discovery, and a bigger sale later — this been opposed by US firm T Rowe Price which, were this to be done, would lose its 26% shareholding and, hence, veto power. This is critical since, in the past, there have been pitched battles with the finance ministry keen to foist its nominee as CMD of the mutual fund. It is not clear whether the ministry will change its view after the board meeting.