UTI Esops can be converted to shares

Conversion allowed in price range of Rs 200-260 apiece

In June, employees of UTI Asset Management Company, India’s oldest mutual fund, were allowed to convert their stock options into shares, a first since the asset management company shelved plans for an initial public offering (IPO) in 2008.

The company had told eligible staff they could convert up to 60 per cent of the nine million shares initially made available through its employee stock ownership plan (Esop), said two sources privy to the matter. “The process of converting Esops did not happen for the last few years. This year, employees were told they could subscribe to the shares,” said one of the sources.

The fund house allowed 10 per cent of the options to be converted at a price of Rs 260. Employees could convert another 50 per cent at a price of Rs 200. The remaining 40 per cent would be due at the end of this year, said the sources.

The Esops had been granted when the company was gearing up for an IPO, announced in 2007. The offering was, however, shelved following a global financial crisis. The employees had, however, not been allowed to convert the Esops when these became due in the past few years.

“The company shall grant 4,560,895 options to 1,176 employees, including 10 key managerial personnel...The company shall not grant stock options to any of its whole-time directors, independent directors and non-executive directors, including the chairman and the managing director,” according to a statement in the company’s draft red herring prospectus dated January 9, 2008. “Currently, the number of equity shares that can be granted under Esop are 9,000,000,” it added.

The vesting schedule mentioned in the company’s documents said 10 per cent of the options would have vested in December 2008. Subsequently, 20, 30 and 40 per cent would vest in the three years up to 2011.

According to the company’s documents, the options could be converted to shares on a proportionate basis, every year, for four years effective December 2011.

An email sent to a UTI spokesperson did not immediately elicit a response.

The move to grant Esops to employees was approved by shareholders at meetings held on September 18, 2007, and December 20, 2007, according to disclosures in the company’s draft red herring prospectus. On December 22, 2007, the company’s human resources and compensation committee passed a resolution granting the Esops to employees. Global investment management firm T Rowe Price is the largest shareholder in the firm, with 26 per cent stake. Other shareholders include State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India, with each owning 18.5 per cent; at the time of the planned IPO, all these four stakeholders had lined up plans to sell stake.

UTI is India’s fifth-largest mutual fund, with average assets under management of Rs 79,440 crore during the quarter ended June, according to data from the Association of Mutual Funds in India.