Ten fund houses in race to manage Suuti ETF

Thursday is final day for bids; govt expects to raise about Rs 7,000 crore

As many as 10 asset management companies (AMCs) will slug it out to bag a mandate to manage the new exchange traded fund (ETF) the central government plans to set up as part of this financial year’s disinvestment programme.

The Centre plans to monetise its holding in Specified Undertaking of UTI, or Suuti, through an ETF, expected to raise Rs 7,000 crore. According to sources, the government has set Thursday as the last day for accepting bids from AMCs to manage the prestigious ETF.

It is reported that Reliance Mutual Fund (MF), SBI MF, Birla Sun Life MF and Goldman Sachs are among those expected to bid.

MANAGERIAL TAKERS APLENTY

• 10 AMCs to bid by October 30 to manage Suuti ETF
• Expense charge, track record important factors in selection process
• Government plans to raise Rs 7,000 crore via the ETF
• Reliance, Kotak, SBI, Birla, Goldman Sachs in the race
• ICICI Securities appointed as advisor to the fund

This will be the second occasion when the government will use the ETF route to meet its divestment target. In 2013-14, the Centre had mopped Rs 3,000 crore through a central public sector enterprises ETF, by selling a small quantity of its holdings in 10 companies. Goldman Sachs and ICICI Securities were manager and advisor, respectively, for the CPSE ETF, launched this March.

ICICI Securities has again appointed as advisor to the Suuti ETF. As a result, sister firm ICICI Prudential AMC will not be able to apply for being manager for the ETF.

The Request For Proposal (RFP) floated by the government states the Suuti ETF will have seven PSU stocks as underlying assets, besides those of Axis Bank, ITC and Larsen & Toubro — the three companies in which Suuti holds sizable stake. The government-owned Suuti owns 11.27 per cent stake in ITC, 8.18 per cent in L&T and 11.66 per cent in Axis Bank. The stake at the current market price is valued at a little more than Rs 55,000 crore. The exact shareholding the government will divest in each of the companies hasn't been divulged. However, sources say the Centre plans to raise Rs 7,000 crore through the ETF.

 

“The proposed ETF will serve as an additional mechanism for the government to monetise its shareholdings in Suuti and other selected CPSEs that eventually form part of the ETF basket,” states the RFP for the ETF, floated earlier this month.

Those in the sector said government officials had a pre-bid meeting with AMCs to address queries surrounding the ETF. “The ministry officials met with us to iron out issues surrounding the structure of the Suuti ETF. This time, more AMCs want to be associated with the government ETF. This is because of the success of last year’s CPSE ETF and also as the investor interest is likely to be even more this time,” said the head of an AMC, who attended the meeting.

Among the key issues discussed were the expenses they will be allowed to charge and the structure of the ETF. Mutual fund executives said managing the ETF isn’t so much of a money-making proposition but more about prestige, as it will draw a lot of investors into the AMC.

Last year, nearly 30,000 investors had applied in the new fund offer of the CPSE ETF. The expense charge quoted by the AMC, along with its record, will be important factors in the selection process, said a source.

The NFO for the Suuti ETF is expected to hit the market in March 2015. Just as the CPSE ETF, the new one will also be a close-ended scheme.