India’s oldest mutual fund, UTI Asset Management Co (AMC), is looking to get itself listed on stock exchanges.
The move will pave the way for promoter public sector banks to raise funds by diluting stake in UTI and bolster their balancesheets to meet the Basel III norms — stringent international capital adequacy standard.
UTI AMC top management is believed to have sent a proposal to the finance ministry arguing in favour of a stock market listing, sources said. The finance ministry is examining the proposal.
UTI AMC is promoted by State Bank of India, Bank of Baroda, Punjab National Bank and Life Insurance Corporation besides US investment firm T Rowe Price.
“The proposal is being looked into…we are trying to push them (PSBs) into hiving off their non core assets and businesses as this would help them garner resources,” a senior finance ministry official told HT.
UTI AMC has over Rs 87,000 crore as assets under management (AUM) and is among the country’s top five asset management companies. Apart from this, UTI also has large real estate holdings across the country and manages the government’s New Pension Scheme, Postal Life Insurance and offshore funds.
Typically, asset management companies are valued at 5% of AUM, which is likely to value UTI AMC at about Rs 4,350 crore. According to senior market sources, UTI’s other assets are valued at Rs 2,000-2,200 crore. In total, UTI could therefore be worth about Rs 6,500 crore.
Though the percentage of shares to be divested by public sector banks is yet to be decided, on the basis of the above valuation, a 49% stake sale could fetch more than Rs 3,000 crore.
The government last year directed all state-owned banks to identify non-core assets and businesses including insurance and mutual funds that could be hived off. They have also been asked to monetise additional real estate assets owned by them. Each bank will have to come up with a concrete plan, which is part of banks’ overall recapitalisation exercise. According to estimates, banks needRs 2,40,000 crore by 2019 to meet the Basel III norms.
“Banks must undertake this exercise (of hiving off their non-core businesses) and focus on their core operation... especially at a time when the level of non-performing assets is rising,” the official added.
UTI had initially planned to launch its initial public offering in 2008 but did not go ahead due to uncertain market conditions.
Until late 1990s, UTI maintained its pre-eminent place. However, after its flagship brand US 64 faced serious challenges including depleting funds and redemptions exceeding sales, the tables turned.
Subsequently, the government had to come out with a bailout package and a new entity called Specified Undertaking of UTI, SUUTI, was set up. SUUTI still holds around 11.66% stake in Axis Bank, 11.77% in ITC and 8.18% in L&T.