Mutual fund major Unit Trust of India yesterday said it was willing to consider off-market deals to sell bulk stocks of corporates which come to it with offers for quasi-buyback deals. Such deals would not only help UTI meet its liquidity requirements but also stabilise the market.
Some corporates are believed to be willing to discuss the possibility of promoters consolidating their holdings by picking up stocks in off-market deals with UTI. The Trust, on its part, has made it clear that it is open to such offers if they come along.
UTI's stand is significant, coming as it does in the wake of severe panic in the market in general and apprehensions of a liquidity crunch being faced by the funds behemoth.
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Asked about UTI's likely reaction if promoter groups or corporates made such offers in coming days, UTI executive director Basudeb Sen told Business Standard: "To the extent the existing laws allow us to sell in such deals and the deals are in conformity with regulations, UTI will be ready to examine these on a case-by-case basis."
However, Sen made it clear that his comment should not be read as the fact that UTI and such corporates had already begun discussing such possible deals. The deals, if and when they happen, would obviously be at prices well over the ruling market price, since these were bulk deals. While the deals would impart liquidity to UTI, they would also serve in boosting market sentiment, since the consolidation of promoter holdings would lend confidence to the market.
UTI sources said with Mastergain redemptions on and liquidity required for US-64 as well, UTI would be willing to try out the bulk deals route when the offers came. "The Trust as a whole would be availing of the liquidity. Not just a few schemes", the sources said.
UTI has also made it clear that as a move towards better corporate governance, it would seek presentations from corporates on their accounts and take steps to ensure that the corporates fell in line. One of the ways it would do this is also by selling the stakes in corporates which did not inspire its confidence.
The UTI argument for opting for bulk deals in the absence of formal buyback laws is that under the existing market situation, the prices of stocks do not truly reflect the market realities. In fact, UTI also feels that the creeping acquisition limit of 2 per cent should be increased to 10 per cent to allow promoters to consolidate holdings from market purchases. "It is an imperfect market that we see now", Sen pointed out. According to him, this was because of
* non-existence of lending against stocks, weakening the demand side
* non-existence of formal buyback laws
* little delivery-based trades, and the absence of a derivatives market which would allow hedging of positions
These drawbacks have meant that prices are not being discovered properly, Sen pointed out, saying the unveiling of buyback laws would lead to the real valuation of stocks in the market. "This would obviously be welcomed by all fund managers", he said.