T Rowe offer not best for UTI AMC

NEW DELHI: US-based investment management firm T Rowe Price is set to pick up a 26% stake in UTI Asset Management Company at Rs 200 per share, which is 20% lower than the price informally offered by Life Insurance Corporation of India and State Bank of India that own 25% each in India's oldest mutual fund.

The deal is expected to be announced in a couple of weeks, said two executives privy to the negotiations.
Both SBI and LIC had offered to pay Rs 250 per share, a 25% premium on the price offered by T Row Price, said a UTI executive directly involved in the deliberations, who asked not to be named.

But, the UTI management decided to accept the offer made by the $2.11 billion US financial behemoth on the grounds that it would bring global synergies to the fund's operations, while allowing the iconic brand to retain independence.

The deal values India's fourth largest fund house at Rs 2,500 crore, at around 3.5% of the asset under management. Indian partners of the fund have valued the AMC at nearly 4.5% of its asset base.

UTI AMC chairman and managing director UK Sinha refused to comment on the issue. ���We have nothing to add at this point of time as the matter is under negotiation,��� he said. Senior officials at LIC and SBI were not immediately available for comment.

A delegation from T Row Price was in Mumbai earlier this week, another UTI executive said, requesting anonymity. The team is likely to meet some government officials in New Delhi, he said.

UTI AMC was formed in 2003 when the government was forced to restructure the erstwhile Unit Trust of India, following a payments crisis in its flagship scheme US-64. All assured return schemes were transferred to Special Undertaking of UTI (SUUTI) and the rest to UTI AMC. The government subsequently divested its ownership in UTI AMC in favour of SBI, LIC, Punjab National Bank and Bank of Baroda for Rs 1,250 crore.



Currently all the four existing partners hold 25% equity each in the fund. Under the proposed deal, they will sell 6.5% each. PNB and BoB wanted to exit this non-core business, while SBI and LIC were keen on acquiring the fund house to ramp up their existing mutual fund business.

The valuation offered by the US fund is much lower than the industry standards, said an executive with a leading foreign mutual fund that operates in India. In 2006. IDFC had bought Standard Chartered Mutual Fund, which had an asset base of Rs 14,000 crore, for $205 million (Rs 820 crore at exchange rates prevailed then), valuing the AMC at a little over 5.5% of its asset base.

UTI AMC is currently managing around Rs 67,500 crore worth assets across its debt and equity schemes. Total assets managed by T Rowe Price group world-wide stood at $269 billion as on March 31, 2009.

UTI Mutual Fund is one of the few fund houses that had made profits in the last five years. Last fiscal, the company has made a net profit of around Rs 225 crore on a turnover of around Rs 450 crore. The AMC has total paid-up capital of Rs 1,250 crore, comprises of 125 crore equity shares of Rs 10 each.