By Ruma Dubey
It is sometimes a blessing to have a foreign investor, especially in PSU stocks, which work in their own fiefdom, not governed by rules of SEBI but by politics.
It was great pleasure that we read the news that US-based asset manager T.Rowe Price Group was asking some very pertinent questions regarding the much delayed IPO of UTI Mutual Fund (UTI MF).
In an exclusive to Business Standard, what we learnt is that T Rowe has shot off a very terse letter to Finance Ministry and SEBI, stating that the Board of UTI MF was deliberately putting off the IPO and it has sought immediate Govt intervention/action.
The urgency for the IPO is mainly on the back of a very strong case of conflict of interest.
UTI MF was formed out of the erstwhile Unit Trust of India in 2003. At that time, UTI was split into two - Specified Undertaking of Unit Trust of India (SUUTI); and UTI Mutual Fund (UTIMF).
The Govt brought in four ‘temporary’ sponsors/investors – SBI, LIC, Bank of Baroda and PNB. Each was asked to pick up a 18.24% stake in the paid up capital of UTI AMC. It was stated at that time that they would be given an exit route via the IPO.
A ‘strategic foreign investor’ was also roped in. That marked the entry of T Rowe and it picked up a 26% stake. And naturally, it too got in lured in by the prospect of making a decent bag of profits when the IPO comes.
The IPO was promised in 2008 but due to market conditions, that never happened. And even markets improved and other AMCs got done with their IPOs and got listed, UTI MF did nothing.
Now the conflict of interest – each of the four PSU institutions own and operate their own AMC and this, as per SEBI rule is not allowed. SEBI 10% cross holding rule states that if any shareholders has a minimum of 10% stake in the AMC cannot own 10% or more in any other mutual fund in India. Clearly, in case of UTI MF, the rules are flouted and SEBI is not able to do a thing about it. Conflict of interest or rules have no meaning whatsoever when it comes to PSUs.
On the other hand, the Govt has been trying its best to bring down Rowe’s stake below the strategic 26% as that will mean Rowe will not be able to block any special resolutions of the Board. The Govt is mulling of an equity dilution of just 10% as this will mean Rowe’s stake will go down below 26% while that of the four institutions will remain at 66%. That would mean the Govt will dictate terms which no one can object to. But if UTI MF goes for a higher equity dilution, of 30-40%, the institutional stake will come down below 51% and that would pave way to a genuinely, professionally managed fund. How can the Govt let that happen, isn’t it?
The institutional investors and mutual funds might already be dictating terms to the promoters within the confines of their conference rooms but taking it public does ensure a closure and give the retail investor to understand the workings on the company well. Yes, it could backfire when unreasonable terms are dictated but that again, when in public forum, it could be thwarted.
This is positive activism and we wish mutual funds and institutions open up here in India too; it could probably usher in a new era of leaders and transparency which is desperately needed in PSUs.