Taking all precautions not to fail in its Rs 30,000-crore disinvestment target for the next financial year, the Cabinet today cleared the winding up of Specified Undertaking of Unit Trust of India (SUUTI) and the transfer of all its assets to a new asset management company (AMC) to carry out a part of the government’s sell-off programme.
“SUUTI amendments have been cleared,” said finance minister Pranab Mukherjee. A ministry note had suggested the transfer of all SUUTI assets to a new AMC.
The idea is to garner non-debt capital receipts by enabling a new AMC to buy government stakes in some PSUs or leverage that stake in any manner the proposed company sees fit.
According to the proposal, the government will wind up SUUTI and transfer its stakes in L&T, ITC, Axis Bank and other companies to the AMC. The AMC will then take a clean loan from banks to buy government stakes in some public sector units. However, it may decide on any other option as well.
SUUTI holds 11.5 per cent in ITC, 23.6 per cent in Axis Bank and 8.3 per cent in L&T. Besides, it holds more than one per cent stake in 16 companies. According to data provided by the BS Research Bureau, at on Friday’s close, the holdings were worth Rs 38,000 crore, the bulk of which came from the stakes in ITC, L&T and Axis Bank.
| HOLDINGS WORTH RS 38,000 CRORE AT PLAY | |||
| Name | M-cap (Rs cr) | SUUTI stake (%) Dec ‘11 | Current value (Rs cr) |
| Axis Bank | 48,770.00 | 23.60 | 11,495.10 |
| ITC | 173,920.30 | 11.50 | 20,000.80 |
| Larsen & Toubro | 79,752.90 | 8.30 | 6,595.60 |
| Total | 302,443.20 | 38,091.50 | |
| As on March 23, 2012 | |||
Earlier, some quarters had raised concern over the high interest liability, which could be 10-15 per cent. Also, the Reserve Bank of India (RBI) had previously rejected the proposal to reduce margin requirement from the existing limit of 50 per cent. This would imply that half the assets of the new AMC would have to be kept free, which may cut loans to roughly Rs 15,000 crore. The ministry has since reportedly been in consultation with the RBI to relax rules regarding margins and interest rates. It is not clear if the central bank has agreed to any of these proposals.
The government had targeted raising Rs 40,000 crore from disinvestment this fiscal. It had raised just Rs 1,100 crore from the disinvestment of Power Finance Corporation before the ONGC auction. The auction, which many termed as not very successful, fetched the government another Rs 12,000 crore. The National Buildings Construction Corporation (NBCC) disinvestment will deliver a few hundred crore rupees to the government this fiscal.
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SUUTI was created in 2002 after the erstwhile UTI faced rough weather since its flagship scheme, US 64, was in the doldrums. The government had bifurcated UTI into two parts — one to manage mutual funds, called UTI Asset Management Company, and the other, SUUTI. The assets and liabilities of schemes where the government had to come out with a bailout package were taken over directly by the government in this new entity.
SUUTI was unable to complete its mandate within the stipulated five years and its tenure had to be extended to 2014. Under section 8 (1) and (2) of the UTI (Transfer of Undertaking and Repeal) Act 2002, SUUTI cannot be wound up until the last claim has been paid.
Although SUUTI disbursed Rs 47,558 crore to about 8.7 million investors over the years, Rs 1,766 crore remains unpaid to around 600,000 unit holders.