The listing of UTI Mutual Fund (UTI MF) on Monday is set to end the more than a decade-old cold war between markets regulator Sebi on the one side and three government-run financial powerhouses — Life Insurance Corporation (LIC), State Bank of India (SBI) and Bank of Baroda (BoB) — on the other. For years, Sebi was not comfortable that these institutions had their own mutual fund arms and, at the same time, also held substantial minority stakes in UTI MF, the country’s oldest fund house.
The stakes were entrusted to these three entities, and also to Punjab National Bank (PNB), in the early 2000s after the erstwhile Unit Trust of India was bifurcated. Each of these entities was holding 25% then. In 2010, US fund management major T Rowe Price acquired 6.5% from each of the shareholders to become the largest stakeholder with a 26% share.
In August this year, Sebi had even fined these three entities Rs 10 lakh each for holding more than 10% stakes in UTI MF and limited some of their shareholder rights. The law did not allow an entity to hold more than 10% in more than one fund house.
This rule was brought in 2018. Prior to that too, on several occasions, Sebi had sent feelers to the four entities to reduce their stake in UTI MF. Only PNB had sold off its fund management business to its foreign JV partner, Principal Financial Group, in 2018. The remaining three continued to have fund management businesses in which each held more than 10% stake.
With UTI MF’s listing, the stakes of LIC, SBI and BoB will come down to below 10% — the regulatory threshold. LIC, SBI and BoB will not have the right to nominate any directors to the UTI MF’s board, which will have 14 members.
The current board members, however, will continue to serve their full term and not resign due to the post-IPO shareholding rejig. After the IPO, T Rowe Price will have the right to nominate two members to the board, while PNB will nominate one. In the wake of the IPO, UTI MF will be a completely professionally managed fund house, said a top company executive.
On October 1, the Rs 2,160-crore UTI MF IPO closed with a subscription of 2.3 times. The shares were allotted at Rs 554 per share. Going by the grey market premium, the listing for India’s oldest fund house is expected to be a lacklustre one with the chance of its share price even dipping below its offer price on its stock market debut, traders said.