Poor valuation cited as reason for the indefinite postponement of the move.
The sale of 26 per cent stake in UTI Asset Management Company (UTI AMC), the country’s fourth-largest mutual fund, is being put on hold due to low valuations offered by its suitors.
Sources at one of the AMC’s promoter banks said that the price being offered for the stake was lower than the valuation done last summer when the fund house was planning an initial public offer (IPO). The public offer had to be called off due to adverse market conditions.
UTI AMC had originally planned a private placement followed by an IPO, which would have resulted in the stake of the four promoters — State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation of India (LIC) — coming down to 51 per cent. With the AMC planning to mop up nearly Rs 2,500 crore, the company had to be valued at around Rs 10,000 crore, which didn’t happen.
| IN A NUTSHELL | |
| How they stack up? | |
| Fund house | AUM (in Rs cr) |
| Reliance Mutual Fund | 76,168.48 |
| HDFC Mutual Fund | 51,420.73 |
| ICICI Prudential | 47,515.50 |
| UTI Mutual Fund | 46,161.40 |
| Birla Sun Life | 42,157.01 |
| AUM up to Jan ‘09 Source: AMFI | |
| Who were in the fray? | |
| T Rowe Price | |
| Vanguard Mutual Fund | |
| Schroders | |
| HSBC | |
| What does this mean? | |
| UTI will put expansion, acquisition plans on hold | |
Banking sources said that the price on offer for the 26 per cent stake would have seen the AMC’s valuation in the region of Rs 6,000-7,000 crore.
At least half-a-dozen global players, including T Rowe Price, Vanguard Mutual Fund, Schroders, HSBC and an Australian Bank, were in the fray to acquire the stake on offer.
“The global financial crisis has affected the ability of some of the foreign investors to expand their footprint and they are offering low valuations,” said a source at one of the promoter group companies.
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When contacted, UTI AMC Chairman and Managing Director U K Sinha refused to comment on the issue.
More than developing new products, the disinvestment of stake would have helped the country’s oldest mutual fund expand its business and acquire some of the smaller players in the field.
The UTI AMC management was keen on roping in a strategic partner during a slowdown as it would have helped them negotiate a better deal with potential targets.
Owing to the turmoil in markets, the fund house is going slow on aggressively garnering new customers and investing in companies. In contrast, some of the private players have grown faster in recent months.
The proposed deal did not entail an expansion of capital. Instead, the four promoters, which hold 25 per cent each, would have divested their holdings proportionately through a fresh issue of shares. A 25 per cent stake for the government-owned promoters restricts their ability to veto any proposal.
UTI AMC was formed in 2003, when the government was forced to restructure the erstwhile Unit Trust of India following a payments crisis. All assured return schemes were transferred to Special Undertaking of UTI (SUUTI) and the rest to UTI AMC. Subsequently, the government divested its ownership in UTI AMC in favour of these four institutions for Rs 1,250 crore.