UTI Asset Management Co. Ltd, the country’s fifth largest mutual fund manager, has proposed an initial public offering (IPO) plan to the government to provide an exit to its four state-run sponsors—State Bank of India (SBI), Life Insurance Corp. of India (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB).
In a meeting with the government last week, the fund house proposed an IPO to dilute at least 26% of the promoter stake to the public, which will allow a partial exit of the asset management company’s four sponsors in equal proportion.
Two persons directly familiar with the development confirmed this, adding that from UTI’s side the IPO option was preferred over other options.
Another suggestion discussed at the meeting was the sale of stake by BoB and PNB to either LIC or SBI and a subsequent merger of UTI AMC with the entity that buys the majority stake in the company. But even BoB and PNB said they would prefer an IPO as it will allow for better price discovery, said the two persons, who did not want to be named, citing the sensitive nature of the matter.
At present, each of the four state-run sponsors holds 18.5% stake in the paid-up capital of UTI Asset Management Co., while the rest is held by T Rowe Price International Ltd.
“UTI has proposed for an IPO of at least 26% promoter stake, which could include partly primary market stake sale and partly secondary market sale. The government has to approve the proposal for enabling UTI Asset Management Co. to go public, which would eventually provide an exit to the four sponsors,” said one of the two persons cited above.
UTI Asset Management Co., which managed average assets worth Rs.1.06 trillion for the December quarter, has been toying with the idea of an IPO for the past seven years in order to provide an exit to the four sponsors, which run their own asset management businesses separately.
A Securities and Exchange Board of India (Sebi) norm does not allow the sponsor of one asset management company to be associated with the sponsors or promoters of another.
“The IPO route definitely is the best option. UTI has sent its proposal in this regard. The finance ministry has to approve it,” said Leo Puri, chief executive officer, UTI Asset Management Co., in a phone interview.
According to a 25 March report by The Financial Express, during the meeting last week, PNB and BoB felt that a listing would be the best way to discover the true value so that they could divest their shares, while SBI and LIC are in favour of a merger.
SBI Mutual Fund is the sixth largest asset management company, with average assets of Rs.1 trillion for the December quarter. A merger of UTI with SBI Mutual Fund will make the latter the number one player in the Rs.13.4 trillion industry. On the other hand, if LIC, which is the only state-run life insurer and is the country’s largest institutional investor, gets UTI Asset Management Co., LIC Mutual Fund will become the fifth largest AMC in the country.
According to The Financial Express report, T Rowe Price too is in favour of UTI Asset Management Co.’s listing.
In November 2009, UTI Asset Management Co. sold 26% stake to Baltimore (US)-based asset management firm T Rowe Price International Ltd, a wholly-owned subsidiary of T Rowe Price Group Inc. T Rowe Price picked up a 6.5% stake from each of the four promoters in a $140 million (aroundRs.652 crore then) transaction.
According to the first person, if an IPO is approved by the government, the valuation of UTI Asset Management Co.’s stake could be substantially higher as compared to what it worked out to be in the T Rowe Price deal in 2009.
Since each of the promoters also has their own asset management companies, it was always clear that they would eventually exit from UTI Asset Management Co. to comply with Sebi norms.
UTI Mutual Fund was carved out of the former Unit Trust of India (UTI) in February 2003. Following a parliamentary approval of the Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, UTI was bifurcated into Specified Undertaking of Unit Trust of India (SUUTI) and UTI Asset Management Co. UTI Asset Management Co. had average assets under management of Rs.92,730.23 crore across its mutual fund schemes during the April-June quarter of 2015-16.