UTI Asset Management set to launch IPO, to sell 26-30% stake
The UTI Asset Management IPO will see State Bank of India, Bank of Baroda, Punjab National Bank and LIC dilute their stake to raise Rs2,500 crore
Mumbai: UTI Asset Management Co. Ltd, India’s oldest and the sixth largest asset management company is ready to launch an initial public offering (IPO) and will offer to sell 26-30% of its equity, three people with direct knowledge of the matter said, asking not to be identified.
The stake comes from the holdings of the asset manager’s four state-run sponsors, State Bank of India, Bank of Baroda, Punjab National Bank and Life Insurance Corp. of India (LIC), all of whom have agreed to dilute their stake, the three people added.
UTI has been discussing the IPO for at least two years with the government.
The share sale is expected this fiscal year, the three people said, providing more details: the size of the IPO could be around Rs2,500 crore; the four state-run shareholders, each of which holds 18.5% in UTI, will sell an equal number of shares. Another 26% stake in UTI is held by US-based asset manager T Rowe Price.
UTI is valued at Rs8,000-10,000 crore, said one of the three.
“ICICI Securities has been involved in advising the shareholders about a potential listing. Around 82% of our shareholders have agreed to it. ICICI Securities will advise the four PSU (public sector unit) shareholder-cum-sponsors on the quantum of stake dilution required, estimated valuation of the stake and other details involving their eventual exit from UTI,” this person added.
“ICICI Securities has discussed the IPO with the shareholders over the last two weeks. A formal mandate for an IPO can be given only after all the necessary approvals are in place,” said the second person.
That UTI was steadily proceeding towards a share sale was evident last week. While announcing State Bank of India’s results, its chairperson Arundhati Bhattacharya said the dilution of some of the lender’s stake in the asset manager was being discussed.
A final decision, though, is yet to be arrived at. “No decision on dilution of stake in UTI AMC has so far been taken. Any decision in this regard will be informed at the appropriate time,” an SBI spokesperson said in an email.
According to the first person cited earlier, Punjab National Bank and Bank of Baroda have informed the UTI board about their preference for an IPO. At a meeting between the government and UTI’s state-run shareholders in 2016, the two banks had said a listing would be the best way to discover the true value of UTI, Mint reported on 30 March 2016.
LIC is yet to formally sign on to the listing plan though.
Spokespersons of LIC, UTI, Bank of Baroda, Punjab National Bank and PNB and ICICI Securities did not respond to emailed queries.
There have been reports that LIC isn’t too keen on selling shares in UTI because it wants to acquire the asset manager and merge it with its own asset management business. An executive at the insurer said on condition of anonymity that it is “willing to dilute its stake in UTI through the IPO if such a stake sale fetches good returns for LIC’s investment inn UTI”.
Even otherwise, the finance ministry “should encourage LIC to support the plan”, said the first person, who expects the IPO process to start within the next two months by which time the government and LIC would have approved the share sale.
If things go to plan, UTI will be the first asset management company in the country to be listed.
There are 42 asset management companies in the country, with average assets under management of Rs18.3 trillion in the January-March period. UTI managed average assets of Rs1.37 trillion in this period.
A share sale would have other benefits as well, the first person added: capital for the three banks; the end of perceptions that UTI’s asset management business is driven by its sponsors, all of whom have their own asset management businesses; and better governance.
“Ideally, the individual shareholding of the sponsors should go below 10%. So in that sense, the offer should be for more than 30% stake. A broad-based listing is important because if you have too little on offer, you don’t get an anchor investor or a high-quality, long-term investor who can support price discovery of the stock,” the first person added.
UTI’s growth has lagged the industry’s. Between March 2012 and January 2017, the Indian mutual fund industry collectively grew assets at an annual average rate of 25%, faster than UTI’s 22% pace.
In an interview in March, Leo Puri, managing director of UTI, attributed UTI’s problems to its complex legacy and issues with shareholders.