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Shaji Vikraman

NEW DELHI, Dec. 31

THE Government is considering the option of setting up of a new asset management company (AMC) for the Unit Trust of India (UTI) either through the initial public offering (IPO) route or through private placement of shares.

The setting up of an AMC is central to the plans to make UTI SEBI-compliant by December 2002 as indicated by the UTI management and the Government last week. If the Government is able to push through this proposal, it would mean that those who had subscribed to the initial capital of the UTI such as IDBI, LIC, SBI and its associates and Syndicate Bank would have to bid for shares in the new AMC just like any other investor, according to officials.

State-owned banks and financial institutions would have to bid along with other private players for the equity in the new company, if they are keen on participating.

These banks and IDBI had contributed Rs 5 crore as the initial capital. Subsequently, in 1999, they along with a few other state-owned banks contributed Rs 445 crore to the UTI, when the Government had to bail out the institution.

All these banks and institutions hold unit capital, which they can either retain as an investment or exit in such a scenario. "They are just like other unitholders, who have been issued units against their original capital," an analyst said. An AMC to replace UTI in its present form can be set up only after legislative changes are carried out to the UTI Act, 1963.

The Y.H. Malegam Committee on corporate repositioning of the UTI had recommended the setting up of an AMC to replace the UTI, with a capital of Rs 1,000 crore. It had also suggested that 60 per cent of the equity capital could be offered to the public and 40 per cent to a sponsoring company.

However, the UTI board and the Government do not appear to be in favour of a strategic partner being roped in as recommended by the committee. There is a consensus on the issue of setting up of an AMC as without a three-tier structure in place, UTI would not be able to comply with the SEBI regulations on mutual funds.

The three-tier structure for mutual funds as outlined by SEBI in its regulations involves a sponsoring company, a trustee company and an AMC.

Although the committee has suggested a capitalisation of Rs 1,000 crore for the AMC, analysts reckon that the company could well be capitalised at a much lower figure. The committee had also recommended that the proposed new AMC should compensate US-64 for taking over its infrastructure and organisation in the form of issue of bonds, carrying market-linked coupon after conversion of the UTI into an AMC.

The Tarapore Committee, on the other hand, was of the view that in its new avatar, there should be three AMCs to replace UTI. One for US-64, one for income schemes and one for growth schemes.

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