`Govt will back UTI with funds'

S. Vaidya Nathan

THE Government has assured Parliament that it would stand behind Unit Trust of India (UTI) in implementing the latest package for US-64. This was one of the significant points made by the Finance Minister, Mr Yashwant Sinha. Replying to a debate in the Rajya Sabha in the past week, Mr Sinha made the following points regarding US-64 and UTI.

*The UTI will not be left in the lurch by the Government for want of funds while buying back units from small investors from August 1 under the package announced for holdings of up to 3,000 units per investor.

*The corpus of US-64 would reach its pre-June 2001 level.

*The value of stocks held by US-64 had fallen due to fluctuations in the stock market and he discounted the view that a part of the corpus was taken out by a few people.

*The three features of US-64 were that it offered capital gains to those who sold units back to UTI at a higher rate, a regular annual dividend and instant liquidity.

*Of these, the only feature that has been affected due to the repurchase freeze announcement is the liquidity aspect, and this was not favourably viewed by investors.

*The UTI had not paid heed to the warnings of the Joint Parliamentary Committee in 1993 to reduce its exposures to equity, which kept rising from 1991-92.

*The rising proportion of funds invested in equities affected the equilibrium of higher investment in debt.

*The UTI was affected by the fall in the share values of public sector stocks which it was forced to buy during the early 1990s.

*The UTI bailout of 1999 involved the Government buying most of these shares for Rs 3,300 crore. An enquiry into PSU stocks angle is merited.

*The UTI had dipped into reserves to pay high dividends.

*The Government would wait for the report of S. S. Tarapore Committee, mandated to look into allegations of insider trading by big companies and PSUs.

*In 1994-95, the UTI made its single largest investment by putting Rs 1,073 crore in an off-market deal. It had a five-year lock-in period. The UTI brought into equity in a `Mumbai-based company' at Rs 385 per share and the company stock hit a low of Rs 77.50 in January 1996. The investment decision was taken by the UTI board and the Ministry of Finance did not have anything to do with the deal.

UTI fully geared: The UTI is geared to meet the redemption in US-64. The Chairman, Mr M. Damodaran, has stated that the UTI is even prepared for a worst-case scenario in which most investors want to redeem the maximum of 3,000 units. UT will need Rs 6,000 crore if 90 per cent of investors with holdings of up to 3,000 units redeem their holdings.

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PM offers probe: The Prime Minister, Mr Atal Bihari Vajpayee, has offered an enquiry into the alleged role of the Prime Minister's Office in the UTI turmoil. The Prime Minister has expressed the view that the PMO had nothing to do with the affairs of the UTI. A Member of Parliament had indicated that in the last days before the deal with Cyberspace Infosys at Rs 935 per share was done, the then UTI Chairman, Mr P. S. Subramanyam, had placed three calls to a key official in the PMO.

More banks for UTI: Three more public sector banks have joined the bandwagon to help out the UTI. Punjab National Bank (Rs 300-Rs 400 crore), Central Bank of India (Rs 250 crore) and Oriental Bank of Commerce (Rs 200 crore). Already, SBI has given a credit line of Rs 1,500 crore, Bank of Baroda Rs 300 crore and Union Bank of India Rs 1,500 crore.

Now Pioneer ITI: Kothari Pioneer Mutual Fund has changed its name to Pioneer ITI. This follows the change in the ownership pattern. The H. C. Kothari group had sold its stake in the Investment Trust of India in 1999 and the latter held a controlling stake in Kothari Pioneer Mutual Fund. Pioneer IT has assets of Rs 3,000 crore and an investor base of 7.3 lakh.

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GIC MF and Cyberspace: GIC Mutual Fund has plans to set up a review mechanism to look into its investment in Cyberspace Infosys. Only one of the schemes had invested in this stock. The CEO of the fund, Mr Bimalendu Chakrabarti, has said it is premature to say at this stage why the fund invested in Cyberspace. The fund has decided to do a thorough examination to find out the reasons behind the investment. GIC Growth Plus II is the scheme saddled with Cyberspace Infosys.

US-64 prices: The Unit Trust of India's flagship fund, US-64, is closed for sale and repurchase till December 2001, except for holdings of up to 3,000 units. From August 1, a repurchase window opened at Rs 10 per unit for holdings up to 3,000 units. This is the price applicable for August 2001. For holdings beyond 3,000 units, a repurchase facility at NAV-linked prices will be available from January 2002.