UTI AMC attracts bids from 4 investors; valued at Rs 3,500 cr

The highest bid has valued UTI AMC at around Rs 3,500 crore, which is around 7.3% of the assets under management.
Schroders, Vanguard Mutual Fund and T Rowe Price have reportedly submitted bids to acquire 26% strategic stake in UTI Asset Management Company (UTI AMC), India’s oldest and fourth-largest fund house.
The highest bid has valued UTI AMC at around Rs 3,500 crore ($690 million) which is around 7.3% of the assets under management (AUM), The Economic Times reported today.
UTI AMC has four shareholders State Bank of India (SBI), Life Insurance Corporation of India (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB), holding 25% stake each.
It was formed six years ago when the government was forced to restructure the erstwhile Unit Trust of India, following a payments crisis. Its assured return schemes were transferred to a separate company called Special Undertaking of UTI (SUUTI), and the rest was moved to UTI AMC.
The latter’s four state-owned shareholders had acquired the firm from the government for Rs 1,250 crore. The ET report adds that each of these four shareholders will sell part of their stake to the strategic investor instead of a fresh issue of shares.
The plan to induct a strategic partner in UTI AMC was announced last year by the former finance minister P Chidambaram. UTI AMC had even toyed with the idea of a public float but this didn’t materialise as the markets turned turtle.
It had originally considered a private placement followed by an IPO that would have brought down the stake owned by its four shareholders to 51%.
The shareholders had planned to raise around Rs 2,500 crore last year that would have valued the asset management firm at Rs 6,500 crore. The bids which are reportedly submitted for the strategic stake now values UTI AMC 46% lower than this.
Among those who had courted the firm earlier include Japan’s Shinsei Bank and the National Australia Bank. Shinsei has since then joined hands with private investor Rakesh Jhunjhunwala to launch a mutual fund venture in India.
There were a couple of deals involving mutual fund houses last year where Religare Enterprises bought out Lotus AMC and IDFC acquired Standard Chartered’s asset management business in India.

Source: http://in.reuters.com/article/indiaDeals/idINIndia-39018320090413?sp=true

30% cap on MFs' exposure to money market papers

In a bid to reduce concentration risk for mutual funds, the Securities and Exchange Board of India (Sebi) On Monday said that funds’ exposure to money market instruments of an issuer will be capped at 30 per cent of its net assets. Schemes can, however, continue to invest up to 15 per cent or 20 per cent of net assets, as the case may be, in other investment grade debt instruments of an issuer.

“These limits will not cover investments in government securities, T-Bills and Collateralised Borrowing and Lending Obligations (CBLO),” the market regulator said.
A large number of schemes, including FMPs, had invested heavily in debt instruments of a single company. Such kind of exposure to the money market instrument of a single issuer made these schemes risky for investors in the event of a default. According to a Crisil report, nearly one-third of fixed income funds have parked more than one fourthof their assets in one company.
Huge exposure to a single company leads to non-diversified portfolio. The report further said that 38 per cent of the debt schemes have significant exposure to the NBFC sector.
While the mutual fund industry has applauded the move, there are still a number of schemes that have invested a sizeable portion of their net assets in a single company. For example, Birla Sunlife FTP series AL retail plan has invested 24.73 per cent in Wockhardt. Similarly, HDFC's 18M Jan2008 retail FMP has put in 23.36 per cent of its net assets in Tata Motors.
Parijat Agrwal, head of fixed income at SBI Mutual Fund, said, “This is a step in the right direction for mitigating risk. Mutual fund portfolios will now become more structured.”
However, experts say that even the 30 per cent limit is very high as funds can invest 15-20 per cent in debt instruments of an issuer, which will take the total exposure to 45-50 per cent.

Source: http://www.business-standard.com/india/news/30-capmfs%5C-exposure-to-money-market-papers/355017/