EVEN as Unit Trust of India (UTI) awaits the Ministry of Finance approval for restructuring, Chairman G.P. Gupta is going ahead with a revamp of its holding pattern. By getting out of all past private placement deals valued at Rs 5,000-crore odd. "This will provide a chance to buy better from the market and impart flexibility to the portfolio," explains Gupta.
More importantly, perhaps, this will give UTI the liquidity it needs to pay dividends and honour redemptions. The market estimates that UTI needs about Rs 2,000 crore to do this. Two of its schemes, Mastergain '92 and Grandmaster '93, were hit by the stock scam and had to be made open-ended in October last year under SEBI stipulation and the investors were given the option to redeem. In 1995, UTI earned more by selling the prestigious Unit Scheme US-64, than it gave away to investors redeeming Mastergain. Unfortunately, this wasn't repeated in 1996.
As a result, UTI has reportedly been selling blue chips like VSNL, MTNL, the Tata group and Bajaj Auto, aggressively over the past year, sometimes up to 10 to 20 lakh shares of a single company. Recently, it started buying to boost the market, though the volumes are very small. There may also be Government pressure on UTI to raise money to subscribe to PSU disinvestment, according to a fund manager. Gupta refutes this, saying he just wants to generate enough liquidity to invest in the capital markets.
But getting out of the private placement deals may be easier said than done. Gupta, however, is confident. Private placements,he explains, were made with the understanding that the companies would tap the primary market within a certain time. These plans were shelved due to the depressed state of the markets. Now, if these companies were to be convinced of the importance of making a public issue, it would provide UTI with a vehicle for divesting its holdings. If this doesn't work, UTI might have to look at the secondary market, but Gupta is confid-ent of reaching healthy liquidity within six months.
Market observers, however, are not as optimistic. All point to the Rs 980-crore private placement deal with Reliance Industries (RIL) in 1994, when UTI picked up RIL shares at an allegedly exorbitant Rs 385 each, and with a five-year lock-in period. UTI is tight-lipped about identities of companies which privately placed their shares with the trust, but the market buzz is that these include ACC, Mukand Iron and Steel, Chemplast and Punjab Wireless. If these companies don't agree to go in for public issues, UTI will have to continue to hold these shares since these cannot be sold in the open market before the lock-in period ends.
Even if they agree, UTI will lose money, given the present market prices. For the Reliance shares, it will only manage about 50 per cent of its purchase price. It reportedly bought ACC at Rs 4,000; today, the ACC scrip is selling for around Rs 1,250. But liquidity UTI will gain.
But if Reliance refuses to play ball, will UTI, which holds huge amounts of Reliance shares bought from the open market, sell these and garner cash? That too may not be easy. Says an FII fund manager: "In a quid pro quo of sorts, Reliance has about Rs 1,000 crore invested in UTI's (US) 64. UTI can hardly sell off RIL shares without Reliance retaliating." "The strategy," says Gupta, "will vary from case to case though details have yet to be worked out. The illiquid holdings will be looked at first." But Samir Arora, chief investment offi-cer, Alliance Capital (India) says: "People will buy according to scrips available and the market trend, not how UTI or anyone else wants to offload. " In some quarters, Gupta's move is also seen as an effort to come clean of unsavoury controversies: allegations of favouring some industrial groups and taking bad decisions under political pressure. Gupta however justifies the earlier investments as "sound with regard to the market conditions then". But to meet his objectives, he will need to have a far sounder understanding of the market. And the delicate art of tightrope walking.
