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Wednesday, September 19, 2007

UTI AMC's IPO gets go-ahead

The first initial public offering (IPO) by a fund house in the country is on course with the government and the board of UTI Asset Management Company approving the proposal to list the shares of the firm.

The board of UTI AMC, which met here on Tuesday, approved a proposal to go in for an offer for sale and a fresh issue of shares. The offer for sale will lead to a dilution of 49% of the equity holdings of the four sponsors of the AMC — State Bank of India, Punjab National Bank, Life Insurance Corporation of India and Bank of Baroda which jointly control 100% of the equity. Given the current valuations, the brand strength and profitability of the AMC, these sponsors are expected to gain considerably from the listing.

The UTI AMC also approved a proposal to grant stock options to its employees besides appointing a consultant for kicking off this process. The issue of fresh shares by the AMC is aimed at meeting growing business needs, according to industry sources close to the development.

The listing of the AMC’s shares would be completed before March 31, 2008, sources added. These proposals were also endorsed on Tuesday at the AGM of the asset management firm. In a post-listing scenario, the four sponsors will control 51% of the equity of the AMC, thus making it eligible to act as a pension fund manager for the new pension scheme and also to handle the National Investment Fund (NIF).

UTI AMC was formed in 2003 after the operations of the first mutual fund in the country — UTI — was split in 2003. The four state-owned sponsors control 25% each of the Rs 10 crore paid-up capital of the asset management firm. The AMC has assets under management of close to Rs 40,000 crore and is now third in the mutual fund sweepstakes behind Reliance Mutual Fund and Prudential AMC.

But in terms of profitability, it has outscored the others, with last year’s net profit touching close to Rs 150 crore. In 2003, the government transferred the net asset value- based schemes to UTI AMC as a part of a restructuring of the mutual fund in the wake of a crisis. The four sponsors paid close to Rs 1,200 crore to the government after a valuation was done in 2005. The listing will provide them with an opportunity to unlock value by selling down their original holding.

Recent valuations have been encouraging such as the one featuring the buy out of Standard Chartered Bank’s AMC business by UBS and also Canbank’s mutual fund business. UTI AMC has the advantage of allied business such as portfolio management (a segment which has grown five fold from Rs 200 crore to Rs 1000 crore in 18 months) besides offshore funds controlling $ 250 million of assets and a venture fund which handles $ 200 million, reports The Economic Times.

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