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UTI purse quite fat to meet redemptions

Calcutta, May 2: Unit Trust of India (UTI) will not have to sell its investments to meet the Rs 2,200-crore cash redemption in its flagship scheme US-64, a senior executive said.

US-64 has been terminated and the Trust will have to pay Rs 2,200 crore to investors exiting the scheme, and issue government-guaranteed bonds to those who opted for conversion of their units.

UTI executive director B. S. Pandit said: “We will not have to sell assets from the scheme (US-64) to meet the cash redemption. We have enough liquid resources to fulfil our cash payment obligations to the investors of US-64.”

There were apprehensions in the stock market that UTI might not be able to pick up the redemption cheque without liquidating the scheme’s assets — mostly shares. The stock market would have tanked if the Trust had to sell its investments in large volume.

The Trust has already started despatching the bonds to its investors. It would start despatch the cheques within a few days. A spokesperson for UTI said: “The bonds will reach the investors before it is listed with the wholesale debt market (on June 1).”

Since the bonds issued to the investors of US-64 will be redeemed in 2008, the Trust has five years to liquidate the assets, which include real estates besides equity and fixed income securities.

Besides US-64, the Trust is likely to terminate a slew of other assured-return schemes. Given the overwhelming response to the bonds, UTI is expected to take the same route — offer an option to convert the units into bonds — for the closure of the other schemes as well.

UTI now has the scope to pool in the assets of all these schemes — particularly the investments in equity — and sell them through off-market deals, which is likely to help them get a better value.

All these schemes put together, UTI has significantly large stakes in many companies. “It is likely to get a premium to the market price, if it chooses to sell these investments to strategic investors or the promoters through negotiated deals,” says a market observer.

The Trust has already said that it would dispose of “non-essential real estates” across the country, including its erstwhile headquarters in New Marine Lines, Mumbai. Selling its real estates, too, could take quite a bit of time.

However, during these five years, UTI will have to pay the interest on the bonds. For the bonds of US-64 alone — which amounts to Rs 8,000 crore in all — it will have to pay around Rs 270 crore every six months.

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