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Govt mulls bond issue for US-64

P Vaidyanathan Iyer

The government is considering an issue of bonds tradeable in the secondary market to raise funds required to bail out the flagship US-64 scheme of the Unit Trust of India.

Finance secretary S Narayan told Business Standard, “We have narrowed down to two options for meeting the US-64 bailout commitment made by the Cabinet Committee on Economic Reforms last December.” The second option was to provide direct cash support to the trust to meet the gap between the administered price and the net asset value, he said.

Narayan said the recent reports on the sale of existing assets by UTI did not address the bailout issue. “Whether UTI sells its equity holding in small lots, block deals or to other financial institutions would be its own decision,” the finance secretary said. The government would want UTI to weigh the pros and cons before taking decision.

The finance secretary said the ministry had held various meetings with UTI and other institutions, including the Life Insurance Corporation and the General Insurance Corporation, last week to hammer out a solution. Even on Friday, additional secretary D Swarup discussed the issue with UTI. Narayan, however, said no final decision on the bailout mechanism hadbeen taken. “We will announce a package within a week,” he said.

UTI has estimated the shortfalls for US-64 — the difference between the assured repurchase prices and the NAV — from April 2002 through May 2003 at Rs 5,500 crore (Rs 55 billion) based on the net asset value of Rs 6.40 per unit as on June 30, 2002. It had requested an upfront assistance of the amount from the government.

The finance ministry has provided Rs 800 crore (Rs 8 billion) till date (Rs 300 crore (Rs 3 billion) last year and Rs 500 crore (Rs 5 billion) in the first additional demand for grants during the current fiscal) and has also committed another Rs 500 crore (Rs 5 billion) in 2002-03.

Since last July, when UTI decided to restructure the US-64 portfolio, the equity exposure of the scheme has dropped from about 70 per cent to 60 per cent. The trust has pared equity exposure in about 190 companies by about 50 per cent.

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