Financial Daily from THE HINDU group of publications
Friday, Aug 30, 2002
Markets - Mutual Funds
Bonds to bail out UTI likely only next fiscal
NEW DELHI, Aug. 29
THE Government's plans of a bond issuance to bail out the Unit Trust of India's (UTI) US-64 scheme may be pushed to the next fiscal.
However, the additional fund requirement to bridge the shortfall between the assured repurchase price and the net asset value (NAV) in the US 64 scheme for the current fiscal may be through direct cash infusion.
The Finance Ministry is veering towards this view in keeping with UTI's demand for direct cash infusion to bail out the US-64 scheme.
The Government is close to finalising a bailout package, which would include the support mechanism for both the US-64 scheme and the assured return schemes. The organisational restructuring of UTI would hinge largely on the shape of the support package for all the schemes.
So far, the Government has provided direct cash infusion of Rs 800 crore (Rs 300 crore in 2001-02 and Rs 500 crore in 2002-03), and another Rs 500 crore is in the pipeline.
According to a senior official, the Government may be in a position to absorb the extra liability in the current fiscal.
"An additional cash infusion of Rs 500 crore may not have a major impact on the fisc in 2002-03. The bond option is being considered for the next fiscal when there would be redemption pressure,'' an official said.
While the bailout for US 64 is estimated at Rs 6,400 crore, the Government will have to fork out a whopping Rs 5,100 crore in April and May 2003.
The Finance Ministry has proposed the issuance of bonds tradable in the secondary market on the lines of oil bonds. It will entail issuance of securities to UTI, which, in turn, will enable the Trust to off load the security when it requires funds to meet the shortfall in the US-64 scheme.
The exercise would virtually be revenue neutral as the Government's liability will be limited to the interest rate on securities.
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