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July 28, 2001
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US-64 redemptions may touch Rs 60 billion

P Vaidyanathan Iyer & Sidhartha

The Unit Trust of India is expecting redemptions in Unit Scheme-64 from anywhere between Rs 32 billion and Rs 60 billion when the scheme reopens for limited repurchase of units on August 1.

According to government sources, the Trust in its internal assessment has estimated that the total redemptions of US-64 can at most be 47 per cent of its unit capital of Rs 127.78 billion or Rs 60 billion. UTI, however, expects the redemptions to be a more conservative 25 per cent of the unit capital.

Expecting redemptions closer to Rs 32 billion, the mutual fund behemoth is planning to raise Rs 30-40 billion from a clutch of public sector banks with equity holdings in the US-64 portfolio as collateral.

The banks have, meanwhile, sought that UTI give only liquid shares which can be traded in the bourses. This apart, the banks have also sought a margin money of 40 per cent of the line of credit extended to the institution or a comfort letter from the government.

"We have asked for A category scrips as collateral. We will cherry pick the equity stock, which we require as collateral," said a bank chief in the backdrop of the Cyberspace Ltd experience. UTI's equity portfolio comprises investments in over 1,300 companies, of which about 400-500 are either unlisted or illiquid.

"To protect us from a possible loss in the event of a fall in the share price of the companies taken as collateral, we have asked for the margin money," he added. State Bank of India has already extended a Rs 15 billion line of credit to UTI.

As per the package announced by UTI, the Trust will allow redemptions up to 3,000 units from all unitholders. In August, the redemption price has been set at Rs 10 per unit. The repurchase price will be increased by 10 paise per unit for the next 20 months.

UTI, which is shifting to NAV- based pricing mode of US-64 from January 2002, will commence sale and repurchase of units also.

The limited redemption facility is, however, available only for existing unitholders.

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