Sucheta Dalal :Change of heart
Sucheta Dalal

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Change of heart  

Jul 25, 2005

Until last week, it was almost a done deal that UTI Mutual Fund (UTIMF) would be taken over by SBI Mutual Fund (but not officially announced, as stated in this column). But the government seems to have developed cold feet over selling off India’s largest mutual fund to SBIMF for fear of the Left Front objecting to a buyer with a 37 per cent foreign partner in the form of Societe Generale (SocGen). At a meeting in Mumbai last week, the UTIMF board had veered around to the view that no single entity should buy UTI and that it would be collectively owned by the same four sponsor organisations that had helped bail it out after the second debacle in year 2000. This means that the government will now collect on an arrangement that has already been in place for five years. Fortunately, all its four sponsor institutions had indicated to the government that they are interested in buying UTIMF.


More misgivings


Interestingly, the Left parties are unlikely to be alone in their misgivings about UTIMF going to SBI Mutual Fund. Capital market sources too have pointed out that although SocGen has a 37 per cent stake in SBIMF’s asset management company today, it could well be allowed to raise it to 50 per cent in the future. Speculation is that it could be the reason why SocGen paid an unusually high price for its SBIMF stake. State Bank of India already has a 50:50 joint venture with GE for its credit card business, where the latter runs the show. Market participants believe that the government would get far more money through a direct sale to a large foreign fund. Meanwhile, sources connected with the valuation process say that UTIMF was valued lower because January 2003 was chosen as the reference date. Since then, UTIMF’s assets under management have nearly doubled and staff costs have declined. Consequently, a realistic valuation ought to be a few hundred crore rupees higher, they say. It is not clear if the UTIMF board has taken this into account at its meeting last week.


No IPO control


Sebi has written to contradict our report that ‘‘the clearing of some dubious IPOs needs closer scrutiny’’. It says that Sebi only conveys its ‘‘observations’’ as per the Disclosure and Investor Protection Guidelines; it does not clear or approve any IPO or sit in judgement about quality. While this is technically correct, Sebi in fact exercised a lot of power in the last three years by withholding its observations in case of dubious issues. In at least six cases, Sebi officials have persuaded such companies to withdraw issues by making it clear that no observations would be made and the issue would be delayed indefinitely. In fact, IPOs were held up for over six to eight months for want of Sebi ‘observations’ causing companies and investment bankers to complain to the Finance Ministry. Sebi is now hoping to amend its Act in line with the Justice Kania Committee recommendations and get itself the power to reject Offer Documents. Market circles wonder why Sebi has not demanded this power earlier.


Back in business


The Essar group is back in the headlines these days. It has ‘‘bought out’’ Stemcor and gained control of Hygrade Pellets, it has paid back financial institutions in line with its much-restructured repayment obligations. Its beleaguered Essar Oil project, although still mired in litigation is making active progress. And its acquisition of BPL has made it one of the biggest telecom players in India. Many steel companies are in a similarly happy position as is Arvind Mills, another beneficiary of generous financial restructuring. Unfortunately, the same cannot be said about the lending institutions that recklessly funded these groups. The fate of IFCI is still in hanging the balance and although IDBI has converted itself into a bank, it has a long battle ahead to establish itself in a highly competitive market. Clearly, it is lending institutions and their stakeholders who pay a big price for bad loans.




With stock prices continuing to soar, many stock market operators accused of manipulating prices during previous scams are chafing at their inability to operate openly in this Bull Run. All these scamsters are definitely active in the market, they are upset at having to indulge in quiet, benami deals or carefully route their money through expensive tax havens abroad. A bunch of scamsters involved in the 1992 and 2000 scams got together at a resort near Mumbai last weekend, to carve out a strategy to increase their market presence (read manipulation). That’s probably one reason why the stock indices surged to a frightening new high last week.


-- Sucheta Dalal