The decks have been cleared for the dismantling of Specified Undertaking of the Unit Trust of India (SUUTI) and transfer of its equity holdings in various companies to a new special purpose vehicle (SPV).
It is likely to be named National Assets Management Company.
The Cabinet Committee on Economic Affairs (CCEA) on Friday approved dismantling of SUUTI, created in 2002 after the erstwhile Unit Trust of India (UTI) was wound up. The specified undertaking was tasked to oversee the assured-return plans of UTI.
The undertaking has significant stake in three listed blue-chip companies — ITC (11.54 per cent), Axis Bank (23.6 per cent) and Larsen & Toubro (8.3 per cent) — together valued at about Rs 38,000 crore at current market prices.
It also holds over one per cent stake in 16 companies. Its significant holdings in unlisted firms include the 16.96 per cent stake in Stock Holding Corporation of India.
The Economic Affairs Secretary, Mr R. Gopalan, said that the new special vehicle would help the Government's disinvestment programme, as it can buy shares of the divesting companies even when the market conditions are not conducive for public offers.
SPV MECHANISM
The special vehicle can take loans from banks backed by its key holdings to buy the Government stake being divested. The funds could be borrowed through negative lien under which shares cannot be sold without permission of lenders and the Government.
However, certain quarters feel that banks may not be too willing to lend money to the special vehicle against pledging of such shares.
The Cabinet committee nod is only for transfer of SUUTI's holdings to a special vehicle. No decision has been taken on pledging the shares with banks, official sources said. The decision on pledging is likely to be left to the board of the proposed vehicle.
ESCROW ACCOUNT
Plans are also afoot to set up a separate escrow account to which the Government would transfer Rs 1,700 crore of funds that belong to untraceable investors of UTI's assured return schemes, Mr Gopalan said..
The decision to create a new special vehicle comes close on the heels of the Government's controversial five per cent stake sale in ONGC through the auction route.
The auction went through only after state-owned Life Insurance Corporation stepped in and bought 37.7 crore of the 42.77-crore shares for about Rs 11,000 crore.