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T. Rowe Price Bags 26% of UTI AMC

The Rs 650 crore deal was finally announced after a year of denial

India’s fourth-largest fund house by assets, UTI Asset Management Co. Pvt. Ltd (UTI AMC), has shed 26 per cent stake in favour of T. Rowe Price Group Inc (TRP), a global investment management firm, for approximately Rs 650 crore, thereby valuing the fund house at Rs 2,500 crore.

The deal that was struck has been valued at 3.3 per cent of UTI’s assets under management (AUM) and that is at the higher end as industry deals before this one have gone below that priceline. Earlier, Nomura Group had bought 30.5 per cent LIC Mutual Fund stake at 2.4 per cent of AUM, L&T Finance bought 100 per cent of DBS Cholamandalam at 1.6 per cent of AUM. But these were very small fry and UTI is an entirely different kettle of fish, dominating the sector since virtual inception of the industry in India. Since last year, it has increased its reach from 82 to 150 branches with a presence in 450 districts. UTI also has some 60 per cent of independent financial advisors (IFAs) working with it. It is therefore, no surprise that UTI has the largest investor-base.

UTI Mutual Fund was number two for the month of October, after SBI Mutual Fund, in its monthly accretion to its assets base, adding Rs 3,258.55 crore. At the end of October the AUM of the UTI MF stood at Rs 76,847.34 crore.

India's A-League AMCs
Fund House (Rs in Lakhs)
Reliance Mutual Fund 1,16,78,191.68
HDFC Mutual Fund 93,31,603.81
ICICI Prudential Mutual Fund 80,52,494
UTI Mutual Fund 76,84,734.29
AUM as at the end of Oct-2009   

UTI, out of a total of 97 funds, has as many as 36 funds that have received a Value Research star rating, with 5 funds getting a 5-star rating, 6 funds getting a 4-star rating and as many as 16 funds getting a 3-star rating and 9 funds getting a 2-star rating.

The UTI-TRP deal has been in the eye of the businessworld for quite some time, but both parties had either said ‘No Comments’ or let speculation take its course. This time, the concerned parties have consented to affirm the deal. TRP Chief Executive James Kennedy indicated that the deal, “Was a major bet on India,” Reuters reported.

UTI Asset Break-up  
Category* (%)
Debt ST 58.84
Equity 27.69
Hybrid 12.02
Debt 1.45
*In 2009  

The deal was simmering for a year now, with TRP talking to the four shareholders in UTI, made up of four public sector banks (the original sponsors of UTI AMC) - State Bank of India (SBI), Life Insurance Corporation, Bank of Baroda (BoB) and Punjab National Bank (PNB). However, as the deal has gone through various procedural requirements, UTI’s assets have doubled, from Rs 37,831.57 crore in October, 2008 to Rs 76,847.34 crore in October, 2009.

Each of the four banks held 25 per cent of UTI AMC and they sold 6.5 per cent stake to TRP. The four banks have been left with a stake of 18.5 per cent each in UTI.

UTI AMC Net Profit  
Year Rs (cr)
2009 114.96
2008 143.46
2007 146.94

While this would give TRP a running start, with India’s oldest AMC, for the Indian entity, this can offer the benefit of selling its products abroad. It may well have also opened the possibility of the AMC entering the markets with an initial public offering (IPO). UTI AMC chairman U.K. Sinha added, "They will also help in our research process." Last year, the four banks were supposed to to sell 49 per cent of their stake in an IPO, but thr market crash derailed those plans.

In the statement to the stock exchanges PNB indicated that it had sold a 6.5 per cent stake (81,25,000 shares) at Rs 200 each aggregating Rs 162.50 crore.

 

UTI Assets Growth  
Year (%)
2008 -25.25
2007 49.19
2006 51.05

It also sold another 6,500 shares at Rs 11.92 per share for Rs 77,500, which is another 6.5 per cent, of UTI Trustee Company – all four banks’ stake that was sold added up to Rs 3.1 lakh.

If you compare both UTI AMC and T. Rowe Price, then the former has assets worth Rs 76,850 crore while the latter is a behemoth controlling over $366 billion.

Japan’s Shinsei and South Korea’s Mirae Assets were the latest entrants in the Indian assets management business, till TRP came in with the UTI buy.