25 Foreign Investors Line Up For UTI AMC Stake

Private equity firm Blackstone, Goldman Sachs, UBS, Citigroup, National Australian Bank and Shinsei Bank are likely bidders for an equity stake in India’s oldest fund house, UTI Asset Management Company (UTI AMC).

Close to 25 overseas institutional investors have evinced interest in picking up a stake in the country’s third largest mutual fund. UTI AMC plans to offload 20% stake through a private placement and 29% through an initial public offer. However, no single investor would be able to hold more than 5%.

Merchant bankers are in the process of readying the information memorandum which will be given out to prospective investors as a part of the pre-marketing exercise before they give their bids. However, all institutional investors will have to match the initial public offer price if it is more.

The private placement is expected to be completed by January while the initial public offer is slated for February-March. The listing process has to be completed before 31 March 2008. The fund house could raise about Rs 6,000-8,000 crore through the combination of private placement and initial public offer.

The fund house, which has an equity base of 5 crore shares, will be expanding it equity base. It will selling 1 crore shares through private placement and 1.94 crore through initial public offer. The government nominees including State Bank of India, Punjab National Bank, Life Insurance Corporation and Bank of Baroda will hold a 51% stake in the fund house after the listing.

At present, all four hold 25% stake each. They would dilute 5% each in the private placement and another 7.25% each through the IPO. The four sponsors had spent Rs 1,200 crore towards buying UTI’s equity in 2005. The stake sale early next year through the private placement and the IPO will allow them to unlock value.

UTI AMC was created in 2003 after the operations of India’s first mutual fund, Unit Trust of India, were split after many schemes of the old UTI went bankrupt. The government had transferred the net asset value-based schemes to the AMC while some schemes promising guaranteed returns (including the famous US-64) were housed in a separate vehicle called special undertaking of UTI.

The fund house has already received the government’s approval for expanding its equity base. UTI AMC has assets under management (AUM) of about Rs 51,753 crore. In the mutual fund industry, valuations are based on the AUM that the fund has and is calculated as a percentage of the AUM.

UTI AMC plans to double its branches to 150 by this fiscal (March 2008) and raise this to 300 branches over the next fiscal. The funds raised through the private placement and IPO will go towards funding the expansion and new schemes.

The fund house has just launched a mega infrastructure fund which is its largest offer ahead of its proposed initial public offer. UTI’s infrastructure fund, which will invest in listed infra companies, is hopeful of raising Rs 4,000 crore.