Financial Daily from THE HINDU group of publications
Saturday, Jun 22, 2002
Markets - Mutual Funds
Govt guarantee to UTI to cover Aug redemption
NEW DELHI, June 21
THE guarantee extended by the Government to the Unit Trust of India (UTI) for borrowings to help bridge the deficit in two assured return schemes due for redemption on June 30, will also cover the Monthly Income Plan (MIP) which is up for redemption in August.
This will mean that the investors of MIP 97 due for redemption in August can also breathe easy about repayments besides the investors of MIP 97 (2) and the Institutional Investors Special Unit Scheme. Given the protection for these three schemes, the UTI management will now need to worry about repayments of the next assured returns scheme falling later on October.
According to senior Government officials, the Government's guarantee, which will help UTI borrow up to Rs 1,000 crore, has been given subject to the condition that the mutual fund will sell off some of the assets in the Development Reserve Fund (DRF) within six months.
The assets include the equity stake of UTI in the UTI Bank, IL&FS, besides rating agencies, Crisil and ICRA.
UTI is planning to raise funds at fine rates from banks for a maturity of five to seven years to meet its repayment obligations for these three schemes, officials said. The Trust is expected to raise the funds at 200 basis points below State Bank of India's prime lending rate (PLR).
The conditions, which have been imposed by the Finance Ministry, are aimed at ensuring that the guarantee is not invoked later by the lenders.
"The Government's guarantee will enable the UTI to borrow against the security of the assets of the DRF which is reckoned to be close to Rs 850 crore,'' a senior Ministry official said.
Further, the lenders to the UTI have been offered the additional comfort of receivables ranging between Rs 75 and Rs 100 crore flowing into the DRF every month. This will swell the DRF corpus, and help the UTI to meet its repayment obligations later for other MIPs.
Viewed in this context the support extended by the Government to the UTI this time cannot be construed as a bail-out, the official said.
Besides the UTI, the capital markets regulator, SEBI had also written to the Government backing the case of the mutual fund although, the regulator had earlier conceded the point that the DRF was the guarantor for the assured return schemes of UTI. All these schemes had then been cleared by the SEBI.
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