Govt examining merger as well listing for UTI

Finance ministry not ruling out IPO and is also examining proposal from SBI; UTI MF wants to be a public listed entity

The Union finance ministry is studying options for divesting its stake held via public sector entities in one of India’s largest asset management companies (AMC), UTI Mutual Fund. One  is a possible merger of UTI MF with SBI Mutual Fund and the other is listing of the former, sources have said.

The department of financial services (DFS) under the ministry has a proposal from State Bank of India (SBI), to merge UTI AMC with its arm, SBI Mutual Fund. This proposal is  being examined by the department of economic affairs (DEA) and discussions are in preliminary stages. However, it has also not closed the doors on listing of UTI  MF, an  option favoured by the fund house.

“We are examining all options for UTI stake sale but listing hasn’t been ruled out,” said a ministry official.

SBI, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India hold stakes in UTI Mutual Fund on behalf of the central government. Together these entities own 74 per cent in the fund house. The largest chunk of 26 per cent stake is with US-based investment firm T Rowe Price.

In an email response to Business Standard, UTI AMC stated: “It remains UTI’s considered view that UTI be a publicly listed entity. This will help strengthen our governance structure, bring retail investors to the capital market and share with them the benefits of UTI’s growth, and offer price discovery and value creation to existing shareholders. We will seek the approval of the ministry of finance and shareholders for implementing the same. UTI is not able to comment on any other proposal,” said Leo Puri chairman, in an email response.

UTI officials Business Standard spoke to expressed surprise at the proposal from SBI.  They suggested the move would likely have come from SBI's side or the government rather than one that UTI itself would have put in motion, when it is expecting a nod for Initial Public Offer (IPO) plans soon. A person said another stakeholder had also made a similar plan, though this was not successful.

A senior SBI executive said  acquiring UTI MF makes business sense, as this will add strength to the asset management business. The final decision rests with the government. Meanwhile, Bombay Stock Exchange (BSE) has shot-off notice to SBI seeking clarification about such development and furnish information along with the sequence of events in chronological order and the material impact of it.

V G kannan, MD (associates and subsidiaries) at SBI declined to comment on the proposal.

As per data by industry body Association of Mutual Funds in India (AMFI) as of september-december quarter UTI AMC with over Rs 87,000 crore as asset under management (AUM) currently ranks at number five in terms of AUM. SBI Mutual Fund with AUM of over Rs 72,000 crore ranks at the sixth slot. If the proposed merger is cleared, the total AUM of the fund house would be over Rs 1,50,000 crore, close to the market leader HDFC Mutual Fund.

The proposed merger would require an approval from all shareholders. Market participants say if the finance ministry gives a nod to the proposal, getting an approval from the state-owned entities might not be difficult. However, getting an approval from T Rowe Price would be tricky as the US based investment firm is yet to recover their investment in UTI. T Rowe Price bought 26 per cent stake in UTI in 2009 for $140 million.

According to experts, the listing of UTI will give banks the option to exit their holding so that they can focus on their core areas and also encourage more listings in the AMC space. So, far none of the AMCs are listed.

In 2008, UTI Asset Management Co. (UTI AMC) deferred its IPO owning to uncertain market conditions. The fund house had proposed to sell 48 million equity shares through the IPO.