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'UTI has an open mind on open offers'

Y Siva Sankar in Bombay

The Unit Trust of India has said its decision not to subscribe to Reliance Industries's open offer for electricity firm BSES should not be construed as a general policy decision applicable to all such cases in future.

In an exclusive interview with rediff.com, UTI chairman P S Subramanyam said investors and the market should not interpret this move as the financial institution's general reluctance to part with equity via open offers. "We have an open mind on the issue of open offers. This should not be seen as a precedent for anything. If the price is right and if we are convinced that we would be doing full justice to our unit holders, UTI would certainly sell."

He explained the collective wisdom of experts within UTI and outside (other financial institutions like General Insurance Corporation and Life Insurance Corporation) was against subscription to RIL's open offer for BSES shares.

"We felt even the revised price was not realistic. It did not reflect the true potential of the stock. So there was not enough justification for us to offload our stake," Subramanyam said.

He declined to disclose whether intense negotiations (between UTI and RIL over the open offer for BSES equity) preceded the rejection.

Asked what he thought would have been the right price, he declined to go into specifics. "The fund managers know the worth of each and every stock they manage," he said.

The overriding factor, Subramanyam explained, is whether or not the unitholders (UTI's patrons) stand to maximise their benefits. "We are a mutual fund. We function to maximise and safeguard the returns for our investors. We felt we would be doing injustice to them if we offload our stake at the price offered by Reliance," he said.

On July 18, BSES's stock price ended in the Rs 264-267 band on the Bombay Stock Exchange. In May, RIL offered to buy BSES stock at Rs 234. Later, spurred by the FIs's lukewarm response, RIL upped its offer to Rs 255. In March, the BSES price touched a Y2K-high of Rs 392; after the RIL offer in May, the stock's high was Rs 328.

RIL owns 15 per cent of BSES, and made an offer for 20 per cent (or 20.754 million equity shares) more for a 35 per cent equity in all, almost the size of the collective stake of the UTI and the insurance FIs (LIC and GIC). UTI alone holds 12 per cent. More than 50 per cent of BSES is owned by holders of its global depository receipts or GDRs (19 per cent), foreign funds and Non Resident Indians (15 per cent), domestic banks (3 per cent), and retail investors and others (15 per cent).

According to media reports, RIL has succeeded in raising its stake in BSES by 11 per cent through its open offer, in spite of the FIs' non-participation. RIL's stake thus stands at 25.82 per cent. The company is expected to announce details of the acquisitions later this week.

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