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UTI closes in on rescue strategy

Our Bureau

NEW DELHI, July 19

THE Unit Trust of India is close to finalising its options, including a line of credit and soft loans at sub-PLR rates, to meet any redemption pressures.

It is also set to carry out a portfolio composition change in favour of debt and unloading of illiquid stocks shortly, besides putting in place a plan for restructuring and revamping of the country's biggest mutual fund over the next 12 months.

The near and medium-term strategy for revitalising the troubled investment institution was outlined by the new Chairman of UTI, Mr M. Damodaran, today after his meeting with the Finance Minister, Mr Yashwant Sinha. This was his first meeting with Mr Sinh a after taking charge last Sunday.

Emerging from the meeting, Mr Damodaran said that he did not expect much pressure from investors to redeem their units of US-64. The UTI was looking at a combination of options including line of credit, soft loans and loans against the collateral of secu rities to meet the fund requirements against redemptions. However, budgetary support from the Government was an option, to be considered only if redemption pressures are very high.

According to him, only if two-thirds of the two crore investors queue up for redemption would the Trust need to seek support from the banks to obtain funds of over Rs 2,000 crore.

``I'm confident that there will be no pressures on unit redemptions as we do not expect every two out of three investors to queue up on August 1. The 10 paise value addition every month is a better return than anything they get from any other scheme in t he financial sector. We are confident that the small investors would stay with us,'' Mr Damodaran told reporters.

Asked if banks had sought a letter of comfort against the loans, Mr Damodaran merely maintained that it was one of the options since any lender was comfortable with a sovereign guarantee.

He also maintained that not a single bank out of the 27 State-owned banks had indicated its reluctance to offer loans. In fact, most of them had offered to lend at sub-PLR rates. He, however, declined to go into the specifics of the quantum of loan sough t from each bank.

The UTI Chairman also ruled out budgetary support from the Government at this stage, saying that it was a hypothetical question.

Mr Damodaran said that the restructuring and revamping of UTI would be done in such a manner as to ensure the full potential of the country's biggest mutual fund. On the issue of setting up an asset management company for US-64, Mr Damodaran said, ``for carrying out structural changes, some legislative issues would have to be addressed''.

Though the Trust would get rid of illiquid stocks, it was in no hurry to do block deals. ``If we get a good price then only we will go for such deals,'' Mr Damodaran said. The selling of large holdings held by UTI to institutions was also an option.

UTI will also attempt a shift in the composition of its portfolio, in favour of more debt. This had been recommended well over two years ago by the Deepak Parekh Committee. The Trust was also ready to go by the 40 per cent margin imposed by banks for len ding against shares.

Pic.: The UTI Chairman, Mr M. Damodaran, coming out after a meeting with the Finance Minister, Mr Yashwant Sinha, in the Capital on Thursday.

Picture by Ramesh Sharma