SBI & LIC want T Rowe Price to cut stake in UTI AMC
SBI and LIC hold 18.5 per cent each in UTI AMC, as do Punjab National Bank and Bank of Baroda.
This reflects a broader dispute between the domestic shareholders and T Rowe Price that includes retaining the current CEO.
The local stakeholders meanwhile have also sought more time to comply with the rule, said the people cited above.
In March this year, Securities and Exchange Board of India (Sebi) introduced a crossholding limit in mutual funds to eliminate potential conflicts of interest. A shareholder with 10 per cent or more in an asset management company in India cannot hold a similar-sized stake in any other fund house. This means that UTI AMC’s domestic promoters will have to pare their stakes to less than 10 per cent each in next seven months.
SBI and LIC hold 18.5 per cent each in UTI AMC, as do Punjab National Bank and Bank of Baroda. The rule will apply to all four. US asset manager T Rowe Price holds the rest 26 per cent in the fund house.
Banking on IPO
“We have made a representation to Sebi and DIPAM (Department of Investment and Public Asset Management) that the new rule shouldn’t make a distinction between domestic and foreign shareholders, so T Rowe Price, which holds a 26 per cent stake in UTI AMC, should also be directed to bring down its stake in the company,” said one of the persons cited above.
“T Rowe Price, like us, also has interests in asset management business in the US.”
Sebi and DIPAM didn’t respond to queries.
The domestic shareholders are at loggerheads with the overseas one over matters such as continuation of UTI AMC CEO Leo Puri, whose term ends next week as ET reported earlier this week. While the domestic shareholders don’t want Puri to continue as they feel his performance does not entitle him to a second term, T Rowe Price wants him to stay so that a share sale won’t be further delayed.
On Wednesday, the US-based firm moved the Bombay HC seeking its intervention to extend Puri’s tenure as well as to direct the domestic shareholders to lower their stake in UTI AMC in line with the rules.
UTI AMC was formed in 2003 when the government was forced to restructure Unit Trust of India (UTI) following a payments crisis. UTI’s assured-return schemes were transferred to the Special Undertaking of UTI (SUUTI) and the rest to UTI AMC. Subsequently, the four domestic shareholders bought out the government's stake in the fund house for Rs 1,250 crore.
When the fund house was formed, the four shareholders were temporary custodians as they had also started their own asset management companies. “When UTI AMC came into existence, it was indicated that the sponsors will have to eventually bring down their holding. If we are required to reduce, we will do it over a period of time. We have sought more time from Sebi to reduce our holding,” said one of the people cited above.
Besides stake dilution, Sebi’s new rule also says that shareholders cannot have representation on the board.
Another person said that, as per the original agreement, the sponsors have the right to recommend an independent director to the board of UTI AMC. “The people currently represented on the board are not nominee directors of the sponsors,” the person said.
All shareholders want to take UTI AMC public and have been waiting for the finance ministry’s approval for the past two years.
A T Rowe Price spokesperson affirmed this.
“An IPO is the most efficient and value-added option to accomplish” the reduction of sponsor shareholders reducing their stakes to 10 per cent by March 2019, the person said. “Four of the five shareholders of UTI AMC, including T Rowe Price, have approved a public listing.” The person also explained why it didn’t want a change in leadership.
“In order to accomplish that IPO (initial public offering) within seven months, the company needs a CEO,” he said. “A search for a new CEO will take three to four months (the last one took over two years), so it makes the most sense to keep Puri in place for at least the next year so the IPO process can be completed and a proper search for a new CEO conducted.” T Rowe Price said that plans for an offering were being delayed.
“Since last March when the new rules were introduced, two Indian sponsors have asked Sebi for an extension and certain conflicted board members have begun acting as a block, disrupting board governance and seeking to create a gap in leadership, apparently to delay progress toward selling down their stakes,” the spokesperson said.