IPO, offer for sale plan will let state-run sponsors SBI, LIC, BoB, PNB partially sell their stakes in the mutual fund manager
UTI Asset Management Co. Ltd (UTI AMC) is likely to sell shares worth around ₹ 2,000 crore through an initial public offering and a subsequent offer for sale by March.
The share sale will allow UTI AMC’s four state-run sponsors—State Bank of India (SBI), Life Insurance Corporation of India (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB)—to partially sell their stakes, two UTI AMC officials said on condition of anonymity as the decision has not been cleared by its board.
“We have also got an in-principle approval from the government for adopting the public issue route for enabling partial exit of the four original sponsors. We are now waiting for the government’s NOC (no objection certificate) to formalize the process," said one of the two officials.
Each of the four sponsors hold an 18.5% stake in UTI Asset Management, while the rest is held by T. Rowe Price International Ltd.
Top SBI and LIC officials didn’t respond to calls and text messages on Friday and Saturday seeking comment. PNB and BoB have said they would prefer an IPO as it will allow for better price discovery, Mint reported in March.
UTI AMC has been valued at ₹ 7,000-8,000 crore, said one of the two company officials cited above.
A total of up to 26% of UTI AMC (worth around ₹ 2,000 crore) will be sold through a combination of primary and secondary market issuances, this person said.
“Public issue is obviously the best option since it helps in better price discovery for every shareholder. UTI AMC has a robust, growing fund management business and the brand enjoys significant goodwill and trust among the public," said the second of the two UTI officials. “The equity market, too, is doing reasonably well and it is evident that investor appetite is back. So, there are compelling reasons for a public issue."
The fund house, which had average assets under management worth ₹ 1.21 trillion for the April-June quarter, is looking at the maximum possible promoter stake sale. The IPO will allow a partial exit of the four original sponsors in equal proportion. The subsequent secondary market offering will enable these four sponsors to dilute their holdings further.
“A real owner of UTI should be the goal. It has an unusual corporate structure with its sponsors having conflicting interests. The sponsors came in 2003 to comply with the letter rather than the spirit of mutual fund regulations," said Dhirendra Kumar, chief executive of Value Research, a New Delhi-based mutual fund analytics firm. “Resolving the ownership issues will be a positive for the corporate entity as well as investors."
UTI AMC believes that rather than offering a small quantity of shares—say, 10%—and just getting the public issue oversubscribed multiple times, it is preferable to offer at least 26% so that more investors are able to benefit from the company’s growth and, at the same time, the four sponsors are able to offload a meaningful stake to exit, as required by the law, according to the two officials.
“At this stage, we have roped in bankers to advise on the format of the public issue. Once the format is finalized, it will be presented to the board and then merchant bankers for book-building will be appointed. We hope to file the draft red herring prospectus with the Securities and Exchange Board of India (Sebi) before December and launch the public issue before the end of the financial year," said the first UTI official.
In order to provide exit to the four sponsors, another alternative discussed at a meeting in March with the government was stake sales by BoB and PNB to either LIC or SBI and a subsequent merger of UTI AMC with the entity that buys the majority stake in the company.
“A public issue is the best option for UTI as well as the shareholders. The four sponsors should be happy that whatever valuation they get today will be far, far higher than when these four sponsors had put in money," said Prithvi Haldea, chairman and managing director at Prime Database, a New Delhi-based primary market analytics firm. “UTI has a large number of unit holders who can become shareholders when the company goes public. The issuance will surely get a positive market response if the pricing is done well."
UTI Asset Management has been pushing for an IPO for the past seven years to provide an exit to the four sponsors, which run their own asset management businesses separately.
A Sebi norm does not allow the sponsor of one asset management company to be associated with the sponsors or promoters of another.
SBI Mutual Fund is the fifth largest asset management company in India, with average assets under management of ₹ 1.19 trillion for the June quarter. On the other hand, LIC, which is the only state-run life insurer and is the country’s largest institutional investor, has its own asset management unit. PNB and BoB, too, have their own AMCs.
In November 2009, UTI Asset Management sold a 26% stake to US-based asset manager T. Rowe Price International Ltd, a unit of T. Rowe Price Group Inc. T. Rowe Price bought 6.5% each from the four promoters in a $140 million (around ₹ 652 crore then) transaction.
Since UTI AMC’s promoters also have their own asset management companies, they would have to eventually exit from UTI Asset Management to comply with the Sebi norm.
UTI Mutual Fund was carved out of the former Unit Trust of India in February 2003.
Following parliamentary approval for The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, UTI was bifurcated into Specified Undertaking of Unit Trust of India and UTI AMC.