LIC may bag UTI MF

May pay 7-8% of net assets, which would translate to an investment of around Rs 1,550cr.

Life Insurance Corporation of India (LIC) is likely to emerge as the sponsor-promoter to take over the Rs 23,700-crore UTI Mutual Fund.

The country's largest public life insurer is currently doing a valuation of UTI Mutual Fund, according to sources close to the development.

Last week, at a meeting of the four sponsors of the fund with the finance ministry, it was understood that the government expressed concerns over potential threats of a foreign player taking over UTI Mutual and also the government's keenness to ensure the continuation of 'Unit Trust of India' brand name.

The two chief contenders for UTI Mutual ""State Bank of India (SBI) and Punjab National Bank (PNB) "" have foreign partners. SBI has a tie-up with Societe Generale, which holds a 31 per cent stake in SBI MF.

Similarly, PNB's mutual fund is in a three-way partnership with the US-based Principal and Vijaya Bank. Principal has major plans to enter the Indian pension industry and is unlikely to relinquish its name from the mutual fund joint venture.

As on 30 June 2005, LIC Mutual Fund had assets of close to Rs 3,000 crore under management. Post merger, the combined entity will be the largest mutual fund with around Rs 26,700 crore worth of assets under management.

LIC is likely to pay around 7 to 8 per cent of net assets for the acquisition, which would translate to an investment of around Rs 1,550 crore.

The corporation has undertaken fresh valuations of UTI Mutual Fund's assets on the basis of which it would be able to identify how much it would need to shell out to acquire the assets.

While the actual modalities of how LIC will take over UTI Mutual are yet to be finalised, the idea of setting up a special purpose vehicle (SPV) under LIC Housing Finance has been floated.

This is because LIC MF does not have adequate funds to make the investment and LIC itself is unlikely to be permitted to make such a huge investment through policyholders' funds. It also does not have shareholder funds to make good an investment of over Rs 1,000 crore.

LIC executives declined to comment on the issue. "Insurance Regulatory and Development Authority (Irda) may not allow such a large investment for UTI Asset Management Company, and hence some other means will need to be worked out," sources said.