Mumbai: UTI Asset Management Co. Ltd has enough shareholder backing to clear a proposal for an initial public offering (IPO), but the management wants approval from all its five shareholders, said a top executive.
The country’s sixth largest asset manager has four state-owned companies holding 18.5% each—State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corp. The remaining 26% is owned by T. Rowe Price.
In terms of shareholder approval, UTI has more than the 51% backing required to do an offer for sale (which provides current shareholders an exit), or even the 75% needed to raise fresh capital, but the company wants to build a consensus first, managing director Leo Puri said in an interview.
“We value all our shareholders and we believe that a decision of this importance should be conceived with the support of all our shareholders," said Puri in an interview.
On 20 February, the Financial Express reported that LIC had withheld its consent to the IPO as it wanted to acquire UTI and merge it with its own asset management unit. Puri declined to comment on LIC and was just willing to say that he is close to persuading all shareholders and the listing will take place “soon".
The initial share sale is crucial for India’s oldest asset manager, which has been lagging behind industry growth for a while. The absence of a dedicated promoter, delay in going public, limited access to the banking channel for distribution and the absence of large equity schemes in its portfolio has fettered UTI.
Between March 2012 and January 2017, the Indian mutual funds industry collectively grew assets at an annual average rate of 25%, faster than UTI’s 22% pace despite its larger customer base and a half-century old brand. Currently, UTI has Rs1.35 trillion in assets under management while the industry size is nearly Rs18 trillion.
In the past, it has faced other issues such as having to deal with outsized staff and employee unions.
“If I do nothing, I am more prey than a predator in this environment," said Puri.
Puri attributes a lot of UTI’s problems to its complex legacy and issues with shareholders. All the state-owned shareholders have their own asset management subsidiaries. They became reluctant shareholders 15 years ago when the government split the erstwhile Unit Trust of India into the asset manager and another unit—the Specified Undertaking of the Unit Trust of India (SUUTI), a repository of government holding.
“It does not help us if you have such large shareholders who determine your destiny, have a role on who gets appointed to your board, have a role on whether you have a CEO or not, have a role on whether or not you can raise capital for your businesses and so on. And the same shareholder is aggressively competing with you in the market place," Puri said.
After former UTI CEO U.K. Sinha moved on to head the Securities and Exchange Board of India, the asset manager was headless for more than two years before Puri took over.
Puri feels listing UTI will solve several issues. It will resolve conflicts of interest and offer UTI the capital to build new businesses, he said.
“Since we don’t have anyone who can downstream capital to us, we must have access to the public capital," said Puri. “I need freedom for determining strategies not just for the level of products and processes or segments but also need flexibility for execution of partnerships and M&As."
Kaustubh Belapurkar, director of fund research at Morningstar India, agreed.
“Listing makes management decision making easier, it makes it easier to build up a strategy and get the right people on board to drive growth," he said.
Three out of UTI’s four state-owned bank shareholders have enough capital raising of their own to do because of limited government support and rising bad loans.