Listing is the best way out for all concerned
After retrospective taxation, perhaps the best-known example of a long delay in fixing a problem is that of the UTI mutual fund. In 2009, when the government decided to sell a 26% stake in it to US investment firm T Rowe Price, the latter was assured the fund would be professionally run though it was always going to be a tough call with public and private firms run by very different management philosophies. At that point, keep in mind, UTI’s structure was a messy one with four PSUs—SBI, LIC, Punjab National Bank and Bank of Baroda—each holding an 18.5% stake in it, hardly the stuff that makes for easy governance. Also, given the Sebi rule that no promoter could run more than one mutual fund, UTI was also an aberration since each one of the four PSU financial institutions had their own asset management companies—they were, though, given a one-time waiver since they were asked to step in during an emergency when the original UTI was divided into a ‘good’ and ‘bad’ UTI.
The fund has, since, been dogged by controversy with the finance ministry first wanting its own nominee as its chairman and managing director, then wanting to split the job with its nominee as chairman and then, at one point, the independent directors all wanted out after the cross-fire between various partners got worse; in more recent times, the fund has seen a cold war between partners with both SBI and LIC making a play for it—while the former was offering a share-swap to existing owners of UTI, the latter was willing to put cash on the table. While there is no intrinsic reason to prefer an LIC over an SBI or a T Rowe Price—or any other combination for that matter—it is obvious UTI will work better if there is one dominant shareholder. After inheriting a problem from the UPA, the NDA did try to get the shareholders to vote on the matter, as FE reported on Friday—but the meeting didn’t come out with a clear conclusion. The best solution, under the circumstances, is to list the company so that its proper value can be discovered—at that point, each of the five stakeholders can decide to cash out to either the general public or to one another.