What is the cause for the recent disagreement among UTI shareholders?

UTI Mutual Fund is once again in the news as its shareholders bicker over its IPO. Ashley Coutinho explains the genesis of the problem and the implications.

What is the cause for the recent disagreement among UTI shareholders?

Despite recent intervention from the government, UTI Asset Management Company’s (AMC) principal sponsors continue to be at loggerheads. LIC has reportedly written to the finance ministry’s divestment wing, the Department of Investment and Public Asset Management (Dipam), stating that the fund house’s initial public offering (IPO) is not likely in the near term and that the AMC’s foreign sponsor, T Rowe Price, is not cooperating with the board decision on initiating the process to appoint a new managing director for the AMC. T Rowe, for its part, maintains that its representatives on the AMC board are participating in the search process and are fully supportive of the IPO. It feels that while the AMC is preparing for an IPO, it has not yet received the support from all its Indian shareholders. Domestic shareholders, meantime, have approached the Securities and Exchange Board of India (Sebi) seeking more time to comply with the cross-holding norms. The four domestic shareholders also want T Rowe Price to pare its holdings in UTI AMC.

How will the crossholding norms impact shareholders?

The regulator’s March guidelines mandated MFs holding stakes in more than one AMC to trim their stake to below 10 per cent. Such shareholders will also not be allowed to be on the board of both AMCs. Going by this rule, three of the four government shareholders — the State Bank of India (SBI), Life Insurance Corporation of India (LIC) and Bank of Baroda (BoB) — will have to compulsorily dilute their stake in the AMC besides vacating their seats on the UTI board. Each of these entities is a sponsor of other mutual funds. T Rowe, which was brought in by the government as a strategic investor after the US-64 collapse, had picked up 26 per cent in November 2009 by buying 26 per cent stake for $140 million. It does not have a stake in another Indian fund house and consequently does not have to dilute its stake.

Is regulatory compulsion the only reason to go public?

The five-shareholder arrangement has not worked for UTI thus far. It took more than two years for the AMC to appoint a new chief after UK Sinha left the firm in February 2011. The AMC has been unduly risk-averse and has lost out on acquisition opportunities and become overly reliant on IFAs (independent financial advisors) for distribution, factors that have hampered growth. UTI was the top asset manager till FY06 but has gradually slipped out of the top five.

What happened to the petition T Rowe filed a few weeks ago?

T Rowe Price had moved court against the AMC’s board and domestic sponsors, seeking government intervention in the matter. In its petition filed before the Bombay High Court in August, the foreign sponsor had claimed that the four domestic shareholders were trying to stall the company’s proposed IPO. The petition had sought an extension of the term of former managing director and chief executive officer Leo Puri for another year to see the IPO through and had sought Sebi’s help in asking the four domestic shareholders to bring down their holding in the fund house to 10 per cent each from the present 18.50 per cent. However, the foreign fund house had withdrawn its petition after the government intervened and assured that the concerns raised would be addressed soon.

Will the IPO see the light of day?

It is hard to say. UTI AMC had first filed draft papers with Sebi in 2008 but could not hit the capital markets in the aftermath of the global financial crisis. In 2016, T Rowe Price, Punjab National Bank and Bank of Baroda had given UTI a “listing notice”, allowing the AMC to appoint a banker and conduct a feasibility study for the IPO. In 2017, the AMC went ahead with the study and held informal talks with investment bankers. LIC, however, refused to greenlight the proposal.