Meltdown Delays UTI AMC`S Public Issue Plans

The market meltdown has taken its toll on the proposed initial public offering (IPO) of UTI Asset Management Company (AMC) as the country’s third largest mutual fund has delayed its offer due to differences in the valuation of the company for the pre-IPO deal.

The IPO, the first by a mutual fund house in India, is delayed, said a source familiar with the development. As per the earlier schedule, the IPO was to hit the market this month.

Now, the AMC is looking at a possible date next month for the IPO, whose size was pegged at Rs 1,800-2,400 crore, the source said.

Turbulence in the secondary market, which has seen the Sensex dipping by 24% since its January peak, as also Emaar MGF and Wockhardt Hospitals withdrawing their IPOs due to weak investor response, is primarily responsible for the UTI mutual fund’s decision to delay its offer.

Investment banking sources said because of the current market conditions, it has become difficult to do the pre-IPO placement as financial investors have quoted 7-8% of the total assets under management (AUM) of the UTI AMC as valuations.

The management of the AMC is not comfortable with selling at these valuations, considering the recent highly-priced deals that were struck in the mutual fund space.

Last week, Standard Chartered Bank sold its mutual fund business to IDFC for $205 million, which amounted to 5.67% of its AUM as on February-end.

Earlier, in December 2007, Reliance Capital Asset Management sold a 5% stake for Rs 501 crore to Eton Park, a global hedge fund.

This deal valued Reliance Capital AMC at 13% of its assets managed at that time.

The UTI AMC, which is the third largest assets manager after Reliance Capital Asset Management and ICICI Prudential, manages assets worth Rs 52,46471.4 crore.

The Mumbai-headquartered AMC will be offering less than 5% of its equity to a single investor as per its pre-IPO strategic stake sale plans.

National Australia Bank, Japan’s Shinsei Bank and private equity giant Blackstone are keen on investing in the AMC, given the immense growth potential of the sector.