Mumbai: UTI Asset Management Co. Ltd, the country’s fifth largest mutual fund manager, has proposed an initial public offering (IPO) plan to the government to provide an exit to its four state-run sponsors—State Bank of India (SBI), Life Insurance Corp. of India (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB).

At a meeting with the government last week, the fund house proposed an IPO to divest at least 26% of the promoter stake, which will allow a partial exit of the four sponsors in equal proportion.

Two persons directly familiar with the development confirmed this, adding that for UTI, an IPO was preferable to other options.

Another suggestion discussed at the meeting 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. But even BoB and PNB said they would prefer an IPO as it will allow for better price discovery, said the two persons who requested anonymity.

At present, each of the four state-run sponsors holds an 18.5% stake in the paid-up capital of UTI Asset Management, while the rest is held by T. Rowe Price International Ltd.

“UTI has proposed an IPO of at least 26% promoter stake, which could include partly primary market stake sale and partly secondary market sale. The government has to approve the proposal for enabling UTI Asset Management Co. to go public, which would eventually provide an exit to the four sponsors," said one of the two persons cited above.

UTI Asset Management, which managed assets worth an average 1.06 trillion in the December quarter, has been toying with the idea of an IPO for the past seven years in order to provide an exit to the four sponsors, which run their own asset management businesses separately.

A Securities and Exchange Board of India (Sebi) norm does not allow the sponsor of one asset management company to be associated with the sponsors or promoters of another.

“The IPO route definitely is the best option. UTI has sent its proposal in this regard. The finance ministry has to approve it," said Leo Puri, chief executive officer, UTI Asset Management Co., in a phone interview.

According to a 25 March report by The Financial Express, during the meeting last week, PNB and BoB felt that a listing would be the best way to discover the true value so that they could divest their shares while SBI and LIC are in favour of a merger.

SBI Mutual Fund is the sixth largest asset management company, with average assets of 1 trillion for the December quarter. A merger of UTI with SBI Mutual Fund will make the latter the number one player in the 13.4 trillion industry.

On the other hand, if LIC gets UTI Asset Management, LIC Mutual Fund will become the fifth largest AMC in the country.

LIC is the only state-run life insurer and is the country’s largest institutional investor.

According to The Financial Express report, T. Rowe Price too is in favour of UTI Asset Management’s listing.

In November 2009, UTI Asset Management sold a 26% stake to Baltimore, US-based asset management company T. Rowe Price International Ltd, the wholly-owned subsidiary of T. Rowe Price Group Inc. T. Rowe Price picked up a 6.5% stake from each of the four promoters in a $140 million (around 652 crore then) transaction.

According to the first person, if an IPO is approved by the government, the valuation of UTI Asset Management’s stake could be substantially higher than what it worked out to be in the T. Rowe Price deal in 2009.

Since each of the promoters also has its own asset management company, it was always clear that they would 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 (UTI) in February 2003.

Following a parliamentary approval of The Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, UTI was bifurcated into Specified Undertaking of Unit Trust of India (SUUTI) and UTI Asset Management.

UTI Asset Management Co. had average assets under management of 92,730.23 crore across its mutual fund schemes during the April-June quarter of 2015-16.

“I fully support the idea of an IPO over the suggestion of a merger of UTI with any other fund. UTI has established itself as a huge brand, it has a large asset base, more than 10 million investors, a presence across the length and breadth of the country and a clean image," said Prithvi Haldea, the chairman and managing director of Prime Database, a Delhi-based primary market analytics firm.

“Merging such an entity with another firm and diluting such a strong brand is not advisable. IPO is the best option, firstly because the Sebi regulations do not allow one sponsor to run two AMCs and secondly, it is critical now for the government to allow UTI to function independently and grow its business without such hassles over control and management," Haldia said.

“Ideally, if the IPO proposal is approved, UTI should ensure that the overall shareholding of the four sponsors is brought down below 50%. Once UTI is listed, the remaining stake of the four sponsors can be diluted through OFS (offer for sale) or bringing in a new strategic partner which can assist UTI in terms of technology, distribution and management. And, considering the brand UTI, an IPO by the AMC will most likely get a strong response," Haldea added.

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