The specified undertaking of the Unit Trust of India, popularly known as UTI-I, has lost an opportunity to make a killing on its stakes in ITC, Larsen & Toubro and UTI Bank.
The market valuation of UTI-I's stakes in these three companies jumped by almost Rs 2,000 crore (Rs 20 billion) to around Rs 8,500 crore (Rs 85 billion) over the past couple of months and the UTI-I management could not capitalise on it as it appeared directionless after Life Insurance Corporation declined to acquire the stakes.
UTI-I executives said, apart from LIC, there was no other financial institution that had the capacity to buy all its stakes in ITC, L&T and UTI Bank. There is also no government advice on what needs to be done.
The government's rider that LIC will have to hold on to UTI-I's stakes in the three companies has made the public sector life insurer say a firm "no". LIC sees no financial sense in spending around Rs 7,000 crore (Rs 70 billion) of policyholders' money and earning a paltry 1 per cent return on the investment by way of dividend. A 10-year government paper will today yield over Rs 500 crore (Rs 5 billion) more on a similar investment.
The government wants control of these three companies to remain in the hands of their respective professional managements. It fears if UTI-I sells its 11.49 per cent stake gradually in the market, UK-based BAT, the single largest stakeholder in ITC, will grab the opportunity to acquire a controlling stake.
It currently holds around 33 per cent stake in ITC. The public sector insurance companies together hold 19.93 per cent stake in ITC, including LIC's 11.43 per cent.
The government looks at L&T as a company that is engaged in several defence projects and does not want a private entity to gain control of the engineering and construction giant. UTI Bank was promoted by the undivided United Trust of India, and the government wants to continue having a proxy say in the bank.
A UTI-I executive said, "We could have got good valuations now. There is time value of money." Asked why UTI-I could not sell the stakes at a discount to LIC as a compensation to the rider for holding on to the shares, the executive said, "Theory does not always work in practice."
UTI-I sold nearly Rs 8,000 crore (Rs 80 billion) of shares in just over a year.
