Govt set to approve ₹ 5,000 crore UTI AMC IPO
Before the UTI AMC IPO, the government will ask LIC, SBI, PNB and Bank of Baroda to cut their stakes in UTI Mutual Fund from 18.25% to 10% each
Mumbai: T . Rowe Price, the largest shareholder of UTI Asset Management Co. (UTI AMC), called a truce with the government and the markets regulator after the finance ministry agreed to issue a no-objection (NOC) letter for UTI AMC’s initial share sale, and direct state-run financial institutions to cut their stakes in the local asset manager, two people aware of the development said.
The US fund manager withdrew its writ petition against the government, the Securities and Exchange Board of India and other UTI AMC shareholders on Tuesday after it was satisfied with the assurances given by finance ministry officials at a meeting in early August, the people cited above said on condition of anonymity.
Accordingly, the government will ask Life Insurance Corp. of India (LIC), State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) to slash their stakes in UTI AMC from 18.25% to 10% each, within a deadline. T. Rowe Price owns 26% in UTI AMC, but the four government institutions together command a majority on its board.
T. Rowe Price approached the Bombay high court on 8 August, seeking its intervention to force the four state-run institutions to reduce their stakes as mandated by the stock markets regulator, and order the continuance of its chief executive, Leo Puri. On 28 August, it withdrew the petition.
“The government has said this time that it will work out a plan favourable for all stakeholders and the AMC. The government will direct the four public sector sponsor-cum shareholders (who have their own separate in-house AMC businesses) to reduce their stakes in UTI AMC in the next three months, definitely by end of March 2019,” said the first person.
According to the second person, UTI AMC is likely to come out with a ₹5,000-crore IPO.
A T. Rowe Price spokesperson said in an email: “We now have increasing confidence that they (the government) are taking steps to comply with Indian law and regulations regarding divestment of the PSU shareholders’ stakes in UTI (AMC) and toward an eventual IPO of the firm. We believe these developments are in the best interests of UTI and its stakeholders, including its 11 million unit holders. We will continue to work with all parties to sustain progress and reach a successful resolution of these matters in the near term.”
Emails sent to spokespersons for UTI AMC, the finance ministry, LIC, SBI, PNB and BoB remained unanswered.
At the end of the June quarter, UTI AMC had average assets around ₹1.53 trillion, ranking sixth in India’s ₹23.4 trillion asset management industry with 42 fund houses, states Association of Mutual Funds in India data. LIC, SBI, PNB and BoB have their own AMC businesses in India, while T. Rowe Price has asset management business in the US.
“The four sponsors will monetize their stakes either through the proposed IPO or through a private placement route before March 2019. This will also help UTI AMC and the four sponsors comply with Section 7B of mutual fund regulations stipulated by Sebi,” said the second person.
The four state-owned sponsors could together sell at least 34% stake in a UTI AMC IPO, while T. Rowe Price could sell some of its stake and give up its veto powers on the company board, the second person said.
“The total offer to the public in the IPO could be around 40% at an estimated size of Rs. 5,000 crore, if we go by the calculation done by ICICI Securities Ltd. which was appointed by UTI AMC as a banker for its proposed IPO,” said the second person.
The T. Rowe Price spokesperson said the American company did not plan to pursue the writ petition if appropriate action were taken by the government, the regulator, and the four state-owned shareholders.
An IPO could help UTI AMC raise capital and comply with Sebi norms.
“This is a well-deserved victory for UTI AMC and most importantly, it will give the AMC a professionally managed, independent board, which is crucial for its growth in the face of the competition going on in the industry right now,” said the second person.
It was in July 2007 that UTI AMC got its first board approval for an IPO. In January 2008, the AMC, the second largest then, filed a draft prospectus with Sebi, proposing to offer 48 million shares to raise Rs. 1,800-2,400 crore. Just two months later, it deferred the plans as stocks tanked, hurting its valuations.
In September 2008, US-based investment bank Lehman Brothers Holdings Inc. collapsed, sending world markets into a tailspin, forcing UTI AMC to shelve its IPO plans.
In November 2009, T. Rowe Price Global Investment Services Ltd bought a 26% stake in UTI AMC for $140 million (around ₹ 652 crore), valuing UTI AMC at about 3.25% of its average assets under management at the time.
In February 2011, U.K. Sinha, the then chairman of UTI AMC quit and till November 2011, UTI AMC saw a steady erosion in its assets and investor base. In the absence of a new chairman, the AMC was restrained from launching any new schemes, as per Sebi norms. Finally, in July 2013, Leo Puri was appointed as the managing director and CEO of UTI AMC.
In December 2016, UTI AMC appointed ICICI Securities Ltd to advise it on an IPO and by March 2016, the AMC secured enough shareholder backing for the IPO proposal, subject to the government’s NOC.
In May 2017, UTI AMC said it was very close to launching an IPO, while ICICI Securities valued the AMC at ₹ 8,000-10,000 crore. Except for LIC, all shareholders voted in favour of an IPO.
In March this year, Sebi altered mutual fund norms to avoid potential conflicts of interest and strengthen the governance structure of mutual funds. Sebi said no shareholder of an AMC can own more than a 10% stake in another AMC and those who own such stakes need to bring them down by March 2019. Such shareholders will also not be allowed to be a part of the board of either of the AMCs, said Sebi in a circular.
Last month, T. Rowe Price wrote to Sebi, seeking its intervention in the affairs of UTI AMC, extend Puri’s term for a year and direct other shareholders to cut their stakes. Sebi kept quiet.
Finally, earlier this month, T. Rowe Price filed a writ petition against the four PSU sponsors, making the finance ministry and Sebi parties to the dispute in the Bombay high court.
On 12 August, Puri stepped down at the end of his five-year term.
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