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Timeframe for UTI-II sell-off to be drawn up

BS Economy Bureau

The Centre will enter into an agreement with the new asset management company floated by the State Bank of India, the Bank of Baroda, Punjab National Bank and the Life Insurance Company to fix a timeframe for its complete divestment.

"The asset management company will only be a 'transitionary vehicle' before UTI-II is completely divested," said a senior finance ministry official.

The three banks and Life Insurance Corporation will contribute 25 per cent each to the Rs 10-crore (Rs 100-million) paid up capital of the new mutual fund.

UK Sinha, joint secretary, capital markets said, "It is not the government's intention that UTI-II be a mutual fund managed again by the public sector."

The President on Tuesday promulgated the Ordinances for repealing the Unit Trust of India Act, 1963, and amending the Securities and Exchange Board of India Act.

The Ordinance to repeal UTI Act will facilitate splitting UTI into two: UTI-I to be managed by a public administrator and UTI-II, to be ultimately privatised. The Ordinance to amend Sebi Act will give more teeth to the capital market regulator.

According to Sinha, the finance ministry has also initiated a due diligence exercise of UTI-II to decide the amount at which it should be given to the new shareholders.

"The shareholders will also appoint an independent consultant to undertake valuation of UTI-II," he said.

The valuation of UTI-II would take into account the quality of its assets and the total assets under management besides its customer base.

The valuation is expected to be about 7-8 per cent of the assets under management of UTI-II.

Sinha said the government will not wait for completion of the due diligence exercise to transfer UTI-II to the new management led by the State Bank of India, the Bank of Baroda, Punjab National Bank.

The ordinance to repeal UTI Act says there will be an appointed date when UTI would be bifurcated. Till then, status quo will continue in the state of affairs of UTI.

The moment the company is incorporated, the assets would be transferred to it, he added.

The due diligence would be completed within a month or so, said Sinha, adding that once the assets are transferred to the asset management company, it would be for the new promoters to appoint a new team. The chief executive would be appointed by them and his pay scale would be market-linked.

"They will be able to hire the best talent from the market and there will be no bar on the quantum of remuneration," said Sinha.

He also said the initial contributors to UTI's Rs 5-crore (Rs 50-million) capital would be reimbursed. Based on the due diligence and valuation of UTI-II undertaken by the new shareholders, the government would arrive at a minimum price at which UTI-II could be divested.

Any amount realised over and above this could be shared by the government and the four shareholders, he added.

The agreement entered into by the Centre with the new asset management company would also take care of the compensation of the four shareholders.

To a query whether any of these three banks or LIC, which have mutual funds of their own, would be allowed to bid for UTI-II, Sinha said, we can have a situation where they do not have a majority stake.

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