MUMBAI: UTI Asset Management Company's plans to go public in an effort to facilitate stake dilution by key shareholders State Bank of India (SBI) and Life Insurance Corp of India (LIC) have run into a covid-19 hurdle, said three people with direct knowledge of the matter.
UTI AMC had filed its draft IPO prospectus in December 2019.
Three primary stakeholders of the company--LIC, SBI, and Bank of Baroda--in compliance with Securities and Exchange Board of India (Sebi) norms have to reduce their stake to 10% by December.
In an order on 6 December, 2019, the market regulator directed LIC, SBI and BoB to reduce their stake by December 2020, failing which, the regulator would freeze their excess voting rights.
However, given the market conditions, the IPO will be delayed and the three are likely to seek an extension from the regulator on trimming their stake in the asset management company, said one of the people cited above.
"The selling shareholders would need to seek an extension as there is no market for Initial Public Offering (IPO) till at least September. Secondary market is active but primary market is completely dry due to valuation concerns. In an AMC business, the valuations are all the more concerning. Even after September if things pick up, the window is too short to dilute so much stake, the original plan was to do it in 2 phases," said the other person.
The Indian primary market had last seen an IPO in early March when SBI Cards and Payments Services Ltd launched its public offering on 2 March.
“The valuations have depressed to the extent that a public offering is not viable till September. This is true even more so for AMCs as their valuation depends on the equity and debt assets they hold. Equity assets are sticky assets so largely valuation depends on them. The industry saw a drop in inflows in April and May, same is true for UTI too," said the second person cited above.
Under its equity funds, UTI had assets under management (AUM) worth ₹46,594 crore at the end of December, which fell to ₹38,952 crore by the end of May. Total AUM also dropped to ₹1,31,855 crore from ₹1,58,59 crore.
In an emailed response, UTI said, "the timing of the IPO is subject to receipt of regulatory approval and consideration of various commercial factors."
Emails sent to SBI, BoB and LIC on Wednesday and reminders on Thursday did not elicit any response.
According to a third person, the delay in the IPO also looks probable given that Sebi is yet to approve the draft prospectus filed by UTI.
“Another reason for the delay in IPO is Sebi observations on some of UTI’s offshore funds," he said.
LIC, SBI and BoB were to divest their stakes in two phases—a 25% divestment of the stake by all institutional shareholders on pro-rata basis by way of an initial public offering (IPO) and 10.92% divestment in the second phase through a follow-on public offer.
In the first phase the three lenders would offload 8.25% stake each, while T Rowe Price and Punjab National Bank will sell their 3% stakes, each. T Rowe Price is a majority shareholder with a 26% stake in UTI AMC, while PNB holds 18.24%.
The three public sector financial institutions hold 18.24% each in the firm. Sebi’s cross holding norms for mutual funds says the sponsor of an AMC cannot hold more than 10% in another.