The Telegraph
Since 1st March, 1999
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Unit Trust bailout bill down to nil
- Tallest turnaround specialist in finance maps the road ahead for FI duo

Calcutta, April 5: The Unit Trust bailout that people thought could cost the national exchequer up to Rs 14,500 crore, might not cost a penny, thanks to the recovery in the economy and the rise in share prices, according to chairman M. Damodaran.

In August 2002, the government agreed to pick up the tab for the Rs 14,500-crore deficit in Unit Trust’s assured return schemes — the likes of US-64 and the monthly income plans (MIPs). At that time, the deficit in US-64 alone was estimated at Rs 6,000 crore.

“The deficit has already come down to a few hundred crores as of now. We are hopeful that UTI would be able to fulfil its repayment obligations out of its own resources,” Damodaran said.

To illustrate his point, Damodaran cited the example of the Special Unit Scheme ’99, in which the government had invested Rs 3,300 crore.

The scheme reported a 54 per cent (Rs 1,783 crore) depreciation in its net asset value (NAV) in June 1999. As against an initial unit value of Rs 100, the scheme’s NAV had plunged to Rs 45.96 in June 1999.

But by the end of December last year, its NAV had shot up to over Rs 202. “For the government SUS ’99 was the best investment — it gave over 100 per cent return in five years,” Damodaran said.

To close down the assured-return schemes, the Trust issued government-guaranteed bonds to investors willing to stay put. Most investors chose to convert their units into bonds because it carried a higher interest rate than other comparable assets.

By issuing bonds, the Trust managed to defer its repayment liability by five years, thus gaining time to sell the assets of the closed schemes in a phased manner. Besides shares and bonds, the assets included investments in real estate.

The Trust continues to foreclose schemes in the same fashion: it closed down seven schemes on March 31, and two more are being closed down soon. Alongside, the Trust has been selling the assets of its closed scheme.

Over the last one year, it has extensively offloaded shares in the market, while promoters of many companies have bought out UTI’s holding. Alongside, the Trust is aggressively selling properties that it does not use.

“We will continue to offload the assets in a phased manner, and we should be able to pay the interest and principal of the bonds out of resources generated from the sale of assets,” Damodaran added.

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