Allowing T Rowe Price to buy 51% of UTI’s trustee firm a good idea as it will allow the AMC to be professionally run
In June, after close to a decade of the government—and the various PSUs it controls—trying to wrest control of the UTI asset management company (AMC), a solution was finally arrived at. With UTI finally getting Sebi permission for a Rs 3,000-3,500-crore IPO, the stage was set for the four PSUs—State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation—to lower their equity in the AMC to less than 10% each. Though Sebi rules forbid anyone from holding more than 10% shares in more than one AMC—all the four PSUs run their own AMCs—the law didn’t seem to apply to these PSUs. Indeed, though US investment firm T Rowe Price (TRP) was brought in to professionalise UTI a decade ago, the Sebi rules were never implemented, and the PSUs were given multiple extensions to comply with the rules; as it happens, in 2011, as FE first reported, the finance ministry tried to foist its nominee as the head of UTI and, on several occasions after that, some of these PSUs—with the backing of the government—tried to buy out the others so as to merge UTI with the AMCs they owned.
While the IPO approval meant this phase of infighting was over—and T Rowe Price could now use its global network to get in foreign funds for UTI to manage in India—there was still a big potential problem. After the IPO, while the PSUs would still control around 40% of UTI’s shares, TRP’s shareholding is to come down to 23% from the current 26%. Under the Indian law, the shareholding falling below 26% means TRP would no longer have the power to stop certain resolutions, like the appointment of directors, etc.
There was, however, another safety valve, and that was the trustee company. Under Sebi rules, each AMC has to have trustees that ensure its functions are in keeping with the letter and the spirit of the law, and in the best interest of those whose money it is investing; in other words, apart from the AMC’s own board, another layer of oversight has been added. In the battle between TRP and the government/PSUs all these years, the Trustee Board has, more often than not, played the role of the neutral umpire and has prevented certain actions that would have been detrimental to the AMC’s functioning; the Trustee Board, for instance, reiterated the need for the PSU shareholders to cut their stake to below 10% in keeping with Sebi norms. Right now, the PSUs and TRP own shares in the Trustee Company that are proportionate to their current shareholding. What the government has now agreed to is that, in parallel to the IPO, TRP will raise its stake in the Trustee Company from 26% right now to 51%. What this does, then, is to ensure that even as TRP’s stake in the AMC comes to below 26%, by controlling the Trustee Company, it can ensure that no resolutions can be moved that it disagrees with. Finally, a happy ending to a sad saga of boardroom battles in what was once India’s premier mutual fund company.