Calcutta, Sept. 10: The Centre’s takeover of management control of UTI-I — the asset management company that will hold Unit Trust’s assured return schemes — opens up the possibility of the government divesting the shares held by the MIPs and US-64 in pubic sector companies along with its own stake.
UTI chairman M. Damodaran said: “Though UTI-I is destined to die a natural death with the closure of the monthly income plans (MIPs) and the assured return part of US-64, UTI-I has to be actively managed through its lifetime.
“The assets of these schemes will have to be liquidated to fulfil redemption commitments, and the only way to profitably sell them is through negotiated deals. UTI-I cannot dump the stocks held by these schemes in the market.
“When divesting a PSU, the government may tag along the shares held in it by the schemes under UTI-I, with its own stake. This is one of the possibilities that the government may explore to offload some of the assets of the assured return schemes.”
The Life Insurance Corporation and United India Insurance have worked out such an arrangement with the government for the divestment of Tide Water Oil.
The two insurance companies will sell their combined holding of 14.27 per cent along with the government’s 27.71 per cent stake in the Calcutta-based lubricant major. UTI-I is likely to secure a much better value for its shares in PSUs by selling them with the government than in the open market or in the mandatory open offer that follows the divestment of a PSU.
“But not always. We decided not to sell our shares in CMC Ltd in the open offer made by TCS (Tata Consultancy Services), and gained more by selling them in the market later,” Damodaran said. With the exception of CMC, UTI has participated in all other open offers in recent times.
Unit Trust’s flagship scheme US-64 will be split along with the mutual fund itself. As announced by the Centre, the assured return part of US-64 will be transferred to UTI-I, but the units of US-64 sold since January 1, 2002 will be put under a new scheme called Unit Scheme 2002 (US-2002), which will be managed by UTI-II.
Unit Trust has been selling units of US-64 at the scheme’s net asset value (NAV) since January. It has sold around 10 crore units of US-64 this year. This is minuscule compared with US-64’s total unit capital of over Rs 12,000 crore, most of which will be transferred to UTI-I and redeemed next year.
UTI-II, the relatively smaller part of Unit Trust, will be privatised over time and a large number of mutual funds — both domestic and foreign — have evinced interest in acquiring it. Some rough estimates in the industry have valued the management control of UTI-II at around Rs 700 crore.