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UTI claims a share of IFCI bailout

George Smith Alexander in Mumbai

The Unit Trust of India wants a cut from the IFCI revival package the finance ministry is preparing. The mutual fund has moved the finance ministry with a proposal seeking a a direct payment to UTI in "cash" out of the IFCI "reform package" to enable the institution to clear its dues to UTI.

IFCI is one of the top 10 defaulters to the mutual fund. The sum involved in the default was to the tune of Rs 93.90 crore (Rs 939 million) on September 4, 2002.

In a parallel development, UTI has also approached the debt recovery tribunal in Mumbai with a recovery petition against IFCI, which has defaulted in honouring its guarantee in respect of Ispat Ltd and Jindal Iron and Steel Company Ltd.

In a recent letter to UK Sinha, joint secretary, department of economic affairs, ministry of finance, UTI chairman M Damodaran said: "Except for a small payment of Rs 1.84 crore (Rs 184 million) in July 2002, UTI has not received any payment from IFCI since December 2001. This is a matter of concern. Hence it is essential that IFCI should liquidate its debt to UTI."

"We understand that the ministry of finance is in the process of approving a reform package for IFCI. Considering that this account is an NPA in our books, it is suggested that the government in its reform package may provide amounts payable to UTI in cash form so as to be paid directly to UTI."

The UTI chairman also said that this would help UTI in providing better value to its investors in the various assured return schemes and reduce the financial burden of the government and the liability of IFCI.

UTI has an investment of Rs 375.66 crore (Rs 3.76 billion) in IFCI, including Rs 346.50 crore (Rs 3.46 billion) invested in IFCI's non-convertible debentures, Rs 60 lakh (Rs 6 million) in its deep discount bonds and Rs 28.56 crore (Rs 286 million) in its equity.

Damodaran had earlier written a letter to the finance ministry on February 1, 2002, addressed to the then finance secretary, CM Vasudev, on this issue. At that time he had said that on account of non-receipt of the amounts due from IFCI, the net asset value of many of the UTI schemes were adversely impacted. He had also added that the gap between the NAV and the face value had increased on account of IFCI's non-payment.

UTI had in 1999 subscribed to Rs 100 crore (Rs 1 billion) of Ispat's 15 per cent secured redeemable NCDs, which was guaranteed by IFCI's "unconditional, absolute and irrevocable guarantee". Ispat had defaulted in payment of interest on the NCD and consequently UTI had issued a notice against IFCI in May 2001 asking the company to pay up Rs 16.47 crore (Rs 165 million).

As IFCI did not respond to the recall notice, a recovery petition was filed against IFCI with the debt recovery tribunal. The petition was last heard on August 22.

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