Fixing UTI PDF Print E-mail
Monday, 10 October 2011 00:00
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Now that UTI’s shareholders appear to have come up with a solution, albeit flawed, on appointing the next head of the asset management company (AMC), perhaps we can finally look forward to some improvement in the functioning of the AMC whose market ranking has fallen from 4th position last year to 5th now?

India’s reputation as a country that plays fair has no doubt been hit, given how the finance ministry has consistently forced its decision down the throats of UTI’s largest shareholder, US firm T Rowe Price, the world’s sixth-largest investment firm. Since UTI’s HR sub-committee had rejected Jitesh Khosla’s candidature on the grounds he had no financial sector experience, T Rowe Price was opposed to appointing him as UTI chairman; as the other four shareholders (with 18.5% equity each) were PSUs, however, they went along with the finance ministry’s position that Khosla should get the top job. The solution found, of bifurcating the top job at UTI into that of a chairman (Khosla) and a professional COO, is possibly not the best since it is possible this may have ruled out some better candidates who would have wanted the full job, not the half job. But that is in the past, the question is how do we move on from here?

The immediate job, though a formality, will be to get Sebi to lift its ban on UTI launching new schemes. Last month, Sebi had done this when it found the tussle over the next chief was going nowhere and that UTI had been without a full-time chief since February. Once a new chief, and CEO, is appointed, this will get resolved. The larger issue is about making UTI Sebi-compliant. Under the rules, each AMC needs a ‘sponsor’ and, among other things, the sponsor has to hold a minimum of 40% of the AMC’s equity. In UTI’s case, the highest shareholding is that of T Rowe Price, at 26%. The only way then is to dilute the equity of the others and to allow T Rowe Price to buy another 14%; another option is to settle between the PSU firms—LIC, SBI, Punjab National Bank and Bank of Baroda—and get one of them to hold 40%. The second solution, however, is not feasible since Sebi rules also say that no one can be a sponsor for more than one AMC—each of these four PSUs has its own AMC. The reason for this is simple: if SBI has its own AMC, it is unfair that it also be privy to the strategies of a rival AMC like UTI. Sooner, rather than later, the government will have to resolve this issue. Else, Sebi has to step in. This December, it will be 10 years since UTI AMC was set up with a special dispensation that allowed it to not comply with Sebi rules such as on sponsors. The issue of not having one sponsor goes beyond technicalities, it is more practical. If an AMC loses value, the sponsor moves heaven and earth to fix things; in UTI’s case, since there is no sponsor, it is really nobody’s baby.

Last Updated ( Friday, 25 November 2011 06:29 )

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