There have been plenty of marriages and break-ups in the mutual fund industry. But the one currently being talked about the most is UTI Mutual Fund. Speculation is rife as to who the partner will be.
Last year, UTI Mutual Fund, one of India’s largest and the oldest Asset Management Company (AMC), was all geared up to launch its Initial Public Offering (IPO) in April 2008. It would have gone down in history as the first Indian AMC to be listed. Though there were others planning to follow suit. HDFC Mutual Fund too had plans to get listed on the bourses in 2008.
Unfortunately, fate had other plans. And the turmoil in the market forced the management of UTI AMC to defer the IPO plans indefinitely. But since the prime reason for getting listed was to help current shareholders unlock value, the AMC has decided to go down another road — opt for a private strategic investor.
Currently, the AMC has four promoters each holding a 25 per cent stake: State Bank of India (SBI), Life Insurance Corporation of India (LIC), Punjab National Bank (PNB) and Bank of Baroda (BoB).
Three of them have their own mutual funds and their own partnerships too. SBI Funds Management Pvt. Ltd (promoted by SBI) flagged it off when it divested 37 per cent of its stake to Societe Generale Asset Management. US-based Pioneer Investment Group re-entered India to pick up 51 per cent stake in Bank of Baroda Asset Management Co. Ltd. (promoted by BoB). In July 2008, the Japan-based Nomura group signed a non-binding memorandum of understanding (MoU) with Life Insurance Corporation to explore the possibility of expanding ties. This was the first step towards the Japanese financial services major acquiring a stake in the fund business, which has not taken place till date.
The plan of UTI AMC was that post-IPO, in which 19.4 million shares would have been offered to the public for subscription, the above players’ stake in the AMC would totally drop to 51 per cent. In an interview to Mutual Fund Insight in 2007, U K Sinha, CMD, UTI AMC, had stated that the public issue was not to raise fresh capital but to enable the current shareholders unlock value and bring in more involvement of the staff by way of employee stock options. Hence, the move to bring in a strategic partner is not for the expansion of share capital but to result in a proportionate disinvestment by the sponsors. Each of the promoters will divest 6.5 per cent of their holdings, so the new partner will hold a 26 per cent stake while each promoter will have a reduced stake of 18.50 per cent. Now back to the burning issue. Who is the new investor going to be? The AMC is said to be in advanced talks with financial services players and the names being thrown around are T. Rowe Price, Shensei Bank of Japan and Vanguard Mutual Fund.
But now reports indicate that the strategic investment route has also hit a roadblock due to low valuations put forth by UTI AMC’s suitors. Looks like the AMC’s plans are definitely spooked, be it an IPO or strategic partner.