UTI’s rights issue means it can be professionally run, but 4 PSUs owning so much stock means the danger persists.
On the face of things, UTI getting a Sebi approval for a Rs 3,000-3,500 crore IPO is just a way for its shareholders—US investment firm T Rowe Price and four PSUs SBI, BoB, PNB and LIC—to raise some money; indeed, once it is listed and the market value of UTI discovered, the shareholders are free to buy and sell more. In reality, though, the rights issue represents a lot more, and could possibly be the first step in India’s oldest mutual fund becoming a truly board-managed company, something the Atal Bihari Vajpayee government envisaged when, after US-64 took a big hit, it broke up the mutual fund into ‘good UTI’ and ‘bad UTI’. At that time, the four PSUs were asked to buy into the ‘good UTI’ Asset Management Company (AMC) though, even then, to avoid any potential conflict, Sebi came up with guidelines on ‘avoiding conflict of interest between UTIMF and the sponsors’; each of the PSU sponsors owned their own mutual funds. As per the guidelines, sponsors could not, for instance, ‘nominate any employee working with them on the Board of the AMC and the trustee company or any committee of the UTI Mutual Fund’. And, in 2010, the government sold 26% of UTI AMC to the US investment firm T Rowe Price in an attempt to further professionalise its running.
Within a year of this, however, the government decided to interfere—despite promising that UTI would be a board-run company—and, as FE reported exclusively, the finance ministry tried to foist its nominee as UTI’s chief; the nominee, as it happened, had no experience of financial markets and did not pass muster with the appointments committee. While the ministry was adamant, T Rowe Price’s 26% share—that allows veto power under Indian law—and the Board of Trustees ensured this didn’t happen. There was, however, a heavy price to pay, and UTI remained headless for a long time. Indeed, such was the tension between the public and private shareholders, at various points, both SBI and PNB even tried to wrest control of UTI. Though Sebi had, in 2018, given the four PSUs a year by which they had to bring their stake down to less than 10%, this was not enforced. And, while an IPO seemed a good way out, especially since the bank shareholders needed the money to help shore up their precarious finances, this kept getting postponed; indeed, relations between the shareholders were so bad that Leo Puri, the managing director who was preparing for the IPO, was not even given a 12-month extension even though the Trustee Board wanted this. Not surprisingly, T Rowe Price even went to the Bombay High Court against the government; this was later withdrawn because no one really wins in an outright fight with the government.
With the IPO now finally on track, all of this can be put behind, and UTI may just become a board-managed firm; but it is early days yet. T Rowe Price no longer has any veto rights as its shareholding is down to 23%, but the PSUs have around 45% of the shares; so, if the finance ministry wants, the PSUs can once again try to weigh in and try to determine UTI’s future. This happened in 2011 and, even during the current government’s term, the PSUs were trying to wrest control. As with any investment in India, even when a good decision is taken, it is never without its pitfalls since either some of the old landmines aren’t fully defused, or some new ones are added. UTI is an interesting case study of how investors are constantly tripped up in India; we have to see how this story ends.