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`Convert UTI into AMC'

Our Bureau

MUMBAI, Oct. 30

UNIT Trust of India (UTI) should restructure itself as a mutual fund conforming to Sebi regulations and convert into an asset management company (AMC). Before attempting to restructure UTI, the Unit Scheme-1964 (US-64) needs to be linked to net asset val ue (NAV).

Before linking US-64 to NAV, it is equally necessary that provision is made for the contingent liability arising out of the gap, if any, between the available assets in US-64 and guaranteed repurchase price to the scheme's individual uniholders holding u p to 3000 units. And finally, the UTI Act, passed in 1963 ``should be repealed and replaced by a new enactment.''

If the UTI Act were not to be repealed but merely amended, ``there is a danger that the Government may be left with residual responsibilities under the Act which would result in a public perception of continued government accountability.''

These are the broad recommendations suggested by UTI's corporate positioning committee headed by Mr Y.H. Malegam. UTI on Tuesday made these recommendations public and will invite feedback from its stakeholders, institutions and unitholders, on the transi tion of UTI into an AMC.

In enacting the new Act, ``it should be ensure that the Government is totally distanced from UTI'' and transition costs (stamp duties and taxes) are minimised, if not eliminated and the ownership of assets vests in the AMC at the lowest possible cost.

The Malegam committee has suggested that the structure of UTI should be in line with Sebi regulations applicable to mutual funds and accordingly there should be a sponsor, a trustee company and an AMC. The sponsoring company should have a share capital o f Rs 550 crore. The AMC should have a capital of Rs 1,000 crore.

The sponsoring institutions which hold the UTI's initial capital of Rs 5 crore and made additional contribution of Rs 445.5 crore in 1999, should hold 40 per cent of the sponsoring company. The sponsoring institutions should convert part or whole of thei r existing unitholdings in US-64 into shares of the sponsoring company.

The balance 60 per cent of the sponsoring company should be held by a strategic partner ``who is a recognised player in the market and whose reputation and competence are expected to give the required degree of confidence to the unitholders.''

As some of the sponsoring institutions also own AMCs, the committee has suggested that ``no single sponsoring institution should hold more than 25 per cent of the share capital of the sponsoring company.''

It is also necessary that a provision be made for contingent liability arising as a result of the gap between the present value of the future liability under assured return schemes and the value of the assets available under the scheme. And to reduce the size of this gap, the committee has suggested recasting of schemes' portfolios as soon as possible and to ensure that portfolio consists only of G-sec and debt instruments and equities are disposed off.

The committee has suggested that an independent valuer to value UTI as a whole. The valuation should take into account the goodwill attached to UTI and contingent liabilities arising out of assured return schemes after adjusting the balance available in the development reserve fund (DRF).

*Sponsor to have capital of Rs 550 crore and AMC Rs 1,000 crore.

*AMC to compensate Rs 850 crore to US-64 for taking over fixed assets of UTI.

*The DRF should be transferred to AMC free of consideration.

Related links:
UTI restructuring proposed with sponsoring co, strategic investor
UTI revamp: The road to nowhere?

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