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With a full-time CEO, will UTI MF finally be able to launch its IPO?

On Dec 19, UTI AMC filed draft red herring prospectus (DRHP) with the capital market regulator SEBI but the IPO was stuck.

June 14, 2020 / 01:15 PM IST
Imtaiyazur Rahman, CEO, UTI AMC (File Image)

Imtaiyazur Rahman, CEO, UTI AMC (File Image)

The UTI AMC board, on June 13, appointed Imtaiyazur Rahman as the chief executive officer (CEO). He has been the acting CEO of the company for nearly two years.

The decision was taken after the Securities and Exchange Board of India (SEBI) had expressed concern on the CEO position which was vacant for quite some time.

The post was vacant since Leo Puri completed his five-year term as CEO of UTI AMC. Group President and Chief Finance Officer Rahman was appointed as acting Chief Executive Officer after Puri's term ended in August 2018.

Rahman joined the UTI Group in 1998 and has been with UTI since 2003. Working with earlier Chairmen M Damodaran and UK Sinha, he was involved in the transformation of the organisation after the restructuring of the erstwhile Unit Trust of India.

He was CFO of the company and has headed diverse functions, including international business.

Close

"This appointment brings stability in the top management of the company especially since it is planning to launch its IPO shortly and addresses the concerns of SEBI on the CEO position which was vacant for quite some time," UTI AMC said in a press release dated June 13.

On Dec 19, UTI AMC had filed draft red herring prospectus (DRHP) with the capital market regulator SEBI but the IPO was stuck.

Why the delay?

Part of dilly-dallying on stake sale is partly because of the rift between UTI stakeholders and T Rowe Price that has been going on for the last six years, back when T Rowe Price wanted a professional CEO to be appointed instead of an IAS on deputation.

Leo Puri was appointed CEO in 2013 completing a five-year term in August 2018. UTI MF was operating through interim CEO Imtaiyazur Rahman since then.

Industry experts said a delay in appointing full-time CEO delayed the IPO process along with the stake sale of SBI, LIC and BoB

In all there are five stakeholders State Bank Of India, Life Insurance Corporation Of India (LIC), Bank Of Baroda, Punjab National Bank and T Rowe Price International.

SBI, LIC, Punjab National Bank and Bank of Baroda each hold 18.5 percent stake in the UTI AMC. The remaining stake is held by US company T Rowe Price.

On Dec 6, the market regulator directed three public sector financial institutions -- LIC, SBI, and Bank of Baroda -- to dilute their stakes to below 10 percent by December 2021.

In the case of non-compliance with directions, the shareholding and voting rights of these entities in UTI AMC and UTI Trustee in excess of 9.99 percent and corporate benefits will be frozen till the time they comply with the orders.

The stakeholding of SBI, BoB, and LIC in UTI AMC is in contravention of an amendment to SEBI MF Regulations on March 13, 2018, requiring an asset management company (AMC) to be a sponsor and stakeholder holding 10 percent or more, of only one mutual fund, thereby reducing cross-holding in any other AMC at less than 10 percent.

In December 2019, country's largest lender State Bank of India had said it would sell its 8.25 percent stake in UTI AMC through an initial public offering.

The stake sale by most selling shareholders is in line with the cross-holding limit rules introduced by the SEBI in March 2018, which says if a shareholder has at least 10 percent stake in a mutual fund house, then it cannot hold a similar-sized stake in another fund house and would also have to give up its board positions.

For AMC companies holding more than one mutual fund in a one-year timeline was given to comply.

Subsequent to SEBI Regulations enforced on having multiple stakes in AMC, SBI, LIC, and BoB were expected to comply within a year by March 2019 which did not go through.

SBI, LIC and BoB defended their status saying divestment needed approval through the Department of Investment and Public Asset Management (DIPAM), a government of India body.

'Not Satisfied with the replies', says the SEBI order although looking at facts and circumstances of the case, SEBI now allowed timeline till December 31, 2020, for compliance by SBI, LIC, and BoB.

A foremost benchmark of SEBI Mutual Fund Regulations are avoidance of conflict of interest in organising and operating mutual fund operations. This is so since in the asset management business, returns of schemes of one AMC are always competing with returns of schemes of another AMC and for getting investor's corpus.

“For best governance standards without interest conflicts in the asset management business, it is imperative for each MF player to have one AMC and not duplicate,” quoted an ex- SEBI mutual fund department officer who is now an investor.

“What scrip one AMC may be buying in its long term value oriented scheme, another AMC may be selling in its sectoral equity scheme, such conflicts arise when there is holding in multiple AMCs,” added the ex SEBI officer.

With the creation of autonomous financial regulators towards setting governance norms and fair play, public sector players are now subject to the same rules and regulations that govern the entire sector.

In that line of equality for all MF players, SEBI came up with the aforementioned amendment in MF Regulations, implying that each MF player holds a controlling stake in only one mutual fund.

Background

UTI Mutual Fund, originally founded as the country's first asset management company in 1964 has had SBI and LIC as its founding members.

Later, stakes were taken up by BoB and global asset manager Luxembourg-based T Rowe Price.

There has been a buzz for two years of divestment by them in UTI through an IPO process but it did not go through due to differences with T Rowe Price.

Meanwhile, Nippon AMC and HDFC successfully launched their IPOs. Else, UTI AMC would have been the first AMC to get listed on the exchanges.
Himadri Buch
first published: Jun 14, 2020 01:15 pm

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