India’s third largest asset management company, UTI Asset Management Co. Pvt. Ltd (UTI AMC), has shortlisted nine investors including Blackstone Group Lp., Goldman Sachs Group Inc., Shinsei Bank Ltd, National Australian Bank Ltd, the Bank of New York Mellon Corp. and Sequoia Capital Llp. for selling more than 11% of its equity ahead of an initial public offering (IPO) of its shares.
Two sovereign funds from West Asia and a Belgian Bank are also in the race.
The AMC (asset management company) will finalize a few investors from this list and will place 16 million shares or 11.35% of its equity; none of the investors will be offered more than 5%, people familiar with the development who did not wish to be identified said.
Investment bankers have advised UTI AMC to price its shares for the private placement in the range of Rs450-550 per share of a face value of Rs10. At the higher end of the price band, the AMC will earn around Rs880 crore from the share sale. At this price, it will be valued at Rs7,755 crore.
With Rs52,656 crore of assets under management as on 31 January, the asset management firm has a 10% market share in the Indian mutual fund industry, which has a total asset base of Rs5.48 trillion.
If UTI AMC sticks to this price band, its IPO is also likely to be priced in the same range, as the government has stipulated that the price at which private placement is done should be within the price band of the firm’s public float or higher.
Companies typically use pre-IPO placement as a measure of price discovery for the public float and the pricing of the IPO is always higher than the price at which these placements take place.
Executives at UTI AMC who did not wish to be identified said the pre-IPO placement will serve two purposes—it will help the fund discover the price for its public float and bring in money. “The fund will not necessarily sell its stake to the highest bidder. Those entities will get preference which can partner UTI AMC in its new business ventures,” one of these executives said.
Besides asset management through mutual fund schemes, UTI AMC manages Rs4,539 crore (as on 30 September 2007) across portfolio management schemes, overseas funds and a venture capital as well as private equity fund both of which come under UTI Venture Funds Management Co. Pvt. Ltd, a fully owned subsidiary. UTI International Ltd, another wholly owned subsidiary, markets six offshore funds to international investors. UTI International, in turn, has two subsidiaries in which Shinsei Bank holds stakes. These subsidiaries distribute and market funds in south-east Asia and Japan.
UTI AMC will offer 48.5 million shares to the public. The company has filed a draft red herring prospectus with the capital market regulator and is waiting for this to be cleared; executives at the AMC insist that it will go ahead with the idea despite the recent fall in Sensex, the benchmark index of Bombay Stock Exchange. The Sensex has lost 18.19% from its peak of 21,206.77 points recorded on 10 January owing to the bearishness in global equity markets fearing an impending recession in the US and a slowdown in global economic growth.
The public offer is mainly an offer for sale by the asset management company’s four existing promoters, State Bank of India, Life Insurance Corp. of India Ltd, Bank of Baroda and Punjab National Bank, each of which owns a 25% stake. After the share sale, each will have a 13.54% stake and collectively continue to own a majority stake of 54%.
“There can be some fine-tuning in the proposed offer for sale and private placement ahead of the IPO and the original promoters’ stake can go down to 51%,” the people familiar with the development at the AMC said.
Under existing rules, UTI AMC can sell up to 20% stake to foreign investors but no single investor can hold more than a 5% stake in the firm.
UTI’s public float will be the first ever by an asset management company and is likely to set a benchmark for the valuation of the business in India. It is among the profitable companies in this space, having generated an operating profit of Rs228 crore in the fiscal year ended 31 March.
This valuation at the higher end of the pricing suggested by investment bankers represents close to 15% of the total assets managed by UTI AMC as on 31 January. Earlier, in December 2007, Reliance Capital Asset Management sold a 5% stake for Rs501 crore to Eton Park, a global investment fund. This deal valued Reliance Capital AMC at 13% of its assets managed at that time.
Until a few years ago, asset management companies were valued at 5-6% of the assets they managed. The boom in the stock markets has seen a sharp growth in the assets managed by the mutual fund industry. The total assets under management for the industry have grown from Rs2 trillion in January 2006 to Rs5.48 trillion now.