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US-64 window shut for six months

Our Bureau

NEW DELHI, July 2

THE Unit Trust of India (UTI) today confirmed the worst fears of the market and its investors by suspending both sales and repurchase of units under the US-64 scheme for six months, until December and also by slashing the dividend to 10 per cent.

The country's biggest fund manager has also raised visions of the recent troubled past when the Government had to come to its rescue with a bail-out package. Such fears have been stoked this time with the UTI Chairman, Mr P.S. Subramanyam, admitting that the reserves of US-64 will be turning negative.

This is the first time in the almost three-decade-old history of the scheme that the UTI has closed down the sales and repurchase window for six months in one shot and also failed to announce a special repurchase price.

In the mid-1990s, the UTI had suspended the repurchase facility in a staggered manner following substantial corporate outflows.

Considering the repurchases of over Rs 4,100 crore in April-May alone in contrast to the inflows of Rs 3,000 crore in May last year, there are clear indications that large institutional investors had got wind of the deterioration of the performance of th e scheme.

In 1999-2000, the trust had declared a dividend of 13.75 per cent.

Among its debt-oriented schemes, a final dividend of 3.5 per cent has been declared for US-95, making it a total of 13.5 per cent. Most of the schemes such as the MIP 96 and MIP 96 11 and the MIP 95 1 and MIP 95 11 have reported returns of over 13.5 per cent, which is above the five-year bank deposit benchmark, the trust said.

Although the UTI has claimed that several of its equity schemes had outperformed the benchmark Sensex, the performance of US-64 had been hit by extraneous factors like the bearish market conditions, redemption pressures and the pre-Budget market manipula tions, the management said.

The decision to suspend sales and repurchase in US-64 until December by the board was taken with a view to helping the trust consolidate in the interim, by a process of readjustment of the portfolio, strategic sale of its large block holdings in companie s, more pro-active fund management and on hopes of the market improving.

For the record, the Chairman said that the trust was not seeking any bail-out package from the Government.

The distribution of income, however, has been out of the net income of Rs. 1,523.83 crore earned by the scheme. It will work out to Re 1 per unit.

The scheme's unit capital stood at Rs 12,778 crore at the end of June this year. During April-May this year alone, repurchases aggregated Rs. 4,151 crore with the sales mobilisation being Rs 2,661 crore during the year. During the year, repurchases were of the order of Rs 5,962 crore.

Despite the temporary suspension, liquidity in the scheme will be ensured through the Wholesale Debt Segment of the National Stock Exchange (NSE) where US-64 is listed.

The board has formed a committee comprising Mr Subramanyam, the Chairmen of LIC and GIC and another trustee, Mr Chitale to help in the strategic sale of large equity holdings in companies held by the UTI. The plan is to work together with the other inves tment institutions like the LIC and GIC to realise a better price for their combined holdings over the next six months.

This was one of the recommendations of the Deepak Parekh Committee in 1999. It was also decided at today's meeting to nominate a Chief Investment Officer for the US-64, backed by four senior general managers from within the trust. Similarly, chief invest ment officers will be in place for other income schemes also. The dealing function will be under a separate executive director.

On another key recommendation of the committee - of making the US-64 Net Asset Value (NAV)-driven, Mr Subramanyam said that the NAV-based pricing would be done before the end of July 2002. Plans are underway to transfer non-permissible assets held by the scheme like real estate to enable calculation of the NAV on a weekly or daily basis.

Investors who have opted for reinvestment of dividend under the scheme normally done at 2 per cent discount to the July opening sale price will be given the option when the scheme opens for sale or can invest in other schemes of UTI or receive the amount in cash.

In the churning of its portfolio in the US-64 scheme, the management has increased the equity exposure to petrochemicals, FMCG and refineries sectors to 25.11 per cent (16.99 per cent), 13.94 (8.60 per cent) per cent and 10.71 (7.02 per cent) per cent re spectively. Exposure to the telecom sector has come down from 3.41 per cent from nine per cent earlier.

UTI's total sales during the year was Rs 10,143 crore while repurchases and redemptions at Rs 11,929 crore were lower by six per cent compared to last year. The trust is now introducing the income distribution option under UTI MMF and the UTI Bond Fund.

Pic.: The UTI Chairman, Mr P.S. Subramanyam, addressing a press meet in the Capital on Monday.

Picture by Kamal Narang