Tuesday, April 22, 2008

UTI Mutual IPO Dicey, Rider Curbs Placement

The uncertainty in the secondary markets is holding back UTI Mutual Fund from going ahead with its proposed public issue — the first ever by any asset management company in the country.

Curiously, its other fund-raising option — a pre-IPO placement of shares — is also far from taking off, tied as it is by a clause to option one.

"With prices not stabilising, the pre-IPO placement that was supposed to happen in December 2007 is also in a tangle," said a fund official.

According to the draft red herring prospectus (DRHP) filed by UTI Mutual Fund in January, the government has asked the country's third-largest asset management company by assets under management (AUM) to make a fresh issue of 1.6 crore shares by way of a private placement to qualified institutional investors, including existing shareholders (LIC, SBI, PNB and BoB), Indian institutions and a few foreign institutional investors.

This would take its total share base to 14.1 crore shares, thus taking the stake sale to the public through the IPO (4.85 crore shares) and private investors through the pre-IPO placement (1.6 crore shares) to 51% of the company.

The IPO has been marred by investor apathy towards fresh issues, brought on by the poor showing of the secondary market in the past three months.

The pre-IPO placement, on the other hand, has stalled because of a government specification that the issue of fresh shares to private investors should be made on the condition that the allottees will match the price discovered through the offer.

"The price at which such equity shares shall be issued under the private placement will be within the price band or above the higher end of the price band to satisfy the conditions mentioned in the ministry of finance letter," says the DRHP.

With no indication of where that price band will be, potential pre-IPO investors have stayed away.

Sources said UTI MF has narrowed down on 10 potential investors from an initial list of around 20. However, they declined to give away specifics.

The DRHP indicates that these investors will be identified prior to the filing of the final red herring prospectus with the registrar of companies.

UTI Mutual Fund had an AUM of Rs 48,983 crore as at end-March, 2008, behind Reliance Mutual Fund's Rs 90,938 crore and ICICI Prudential Mutual Fund's Rs 54,322 crore.

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