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BUSINESS: UTI
Inquiry Needed To Establish Truth
However, only a
full-fledged inquiry can establish the proddings, if any, on UTI to invest
in some of the dud stocks, or if there were any considerations for such
investment decisions. The purchases that should attract closer scrutiny
are:
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FACE OFF
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# Powerless MoF has no nominee
on UTI board since 1997, nor does it get to know of its investments.
# No reply MoF repeatedly
asked UTI about US-64's health in 2001 but got no reply.
# Weekend trick On June 30,
a Saturday, UTI told MoF about its plan to freeze US-64.
# Non-cooperation Even now
UTI is economical about US-64 details with the MoF.
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DISTRUST: Finance Minister Sinha
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DSQ SOFTWARE: The company's share price
was Rs 995 on June 30 last year. It is going for Rs 64 now. UTI not only
had DSQ shares of Rs 49 crore on its books (barring US-64) in June 2000
but was buying more of it as late as February this year, when the drop
in its price caused a payment crisis in the Calcutta Stock Exchange. Its
likely beneficiary: bull player Ketan Parekh who'd taken long positions
on DSQ.
HFCL: Yet another Parekh favourite, UTI
under Subramanyam dumped part of its holding of 98 lakh shares at the
peak price of Rs 2,553, only to buy them again. Given its current holding
of one crore HFCL shares, which are trading at a meagre Rs 74, UTI's loss
from the peak value is Rs 2,330 crore.
CYBERSPACE: In August 2000, much after
software stocks had tumbled, UTI bought its stocks worth Rs 34 crore through
private placement at Rs 930 a share-against the opinions of researchers
and a lead manager. The company soon went bust and its promoters, who
were absconding, have just been nabbed. The securities are not even worth
the price of the paper they are printed on now.
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SILENT GUARDIANS
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The UTI board of trustees comprised big names of the financial
and corporate world
1 S.K. CHAKRABARTI
CMD (Acting), IDBI
2 N.S. SEKHSARIA
MD, Gujarat Ambuja Cement
3 R.P. CHITALE
Chartered Accountant
4 V.V. DESAI
Consultant
5 K.L. KHETARPAUL
Executive Director, RBI
6 G.N. BAJPAI
CMD, Life Insurance Corporation
7 D.T. PAI
CMD, Syndicate Bank
8 JANKI BALLAV
CMD, State Bank of India
The trustees were inert in their roles and are guilty of omission,
as much as Subramanyam is guilty of commission.
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SRIVEN MULTITECH: In May 2000, its Hyderabad-based
promoter sold 10 per cent stake in the company to Parekh at par value.
The bull ramped up its price to Rs 450 in three months, following which
UTI bought it at market price. Today the company's shares are quoting
at Rs 8.
These are like decisions taken in smoke-filled
rooms and, arguably, deals were cut. Some crumbs from the table were thrown
at unlisted, but politically well-connected media companies, like Pritish
Nandy Communications (Rs 1.53 crore), Jain Studios (Rs 5.07 crore in cumulative
preference shares, February 2001), or Sanjay Khan's Numero Uno International
(Rs 7.49 crore in February 2001). Only the Jain Studios scrip is listed,
though it is now trading at one-eighth of the acquisition price. The others
are not listed, so the trust has no exit route. Similarly it is stuck
with huge debt papers which are junk, like Rs 188 crore invested in non-convertible
debentures with a non-performer called Malavika Spinning. When equity
investment would have looked embarrassingly fishy, US-64 chose to patronise
its favourite companies with somewhat less controversial, but
equally risky, debt investments. The trust lent Rs 50 crore to HFCL in
non-convertible debentures at a time when the company's share price had
started dropping.
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DEVIL AS DOCTOR: Small investors have to pay for UTI's
sins
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Silverline
Cost in 2000: Rs 6.1 Crore
Value Now: Rs 84 Lakh
Aftek infosys
Cost in 2000: Rs 20.7 Crore
Value Now: Rs 1.7 CRORE
Pentamedia Graphics
Cost in 2000: Rs 183 Crore
Value Now: Rs 20 crore
Input
20 million ordinary savers help maintain the corpus
Output
Corporate investors redeem units worth Rs 4,000 cr in March and
April this year.
SSI
Cost in 2000: Rs 551 CRORE
Value Now: Rs 54 crore
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The
skulduggery in UTI led to the surrender of its autonomy.
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Subramanyam's daring misadventures are more than
a mere
bad patch in the fund's history. It could cost UTI its autonomy. Those
holding the Government responsible for US-64's failure are actually demanding
restoration of government control over the institution, particularly when
the state avowedly intends to get out of financial businesses. The lesson:
just like half-baked reforms bring disrepute to the process of economic
liberalisation, unfitting appointments in key positions could deny an
institution its well-deserved autonomy. If the Government increases its
hold over the fund, it will end up in a vicious circle of politician-businessman
nexus.
UTI began its march in 1964 with the lofty ideal
of helping the small investor with an assured return, mostly in debentures
that regularly paid interests. It changed its course in 1994, buying heavily
into Reliance Industries in an off-market deal and at a price that collapsed
soon after the purchase; the amount has not even doubled in seven years.
But the policy shift opened the floodgates for all sorts of companies-well-managed
as well as not-so-well-managed-to clamour for more and more capital. And
to pull political strings if the demands are not met. Until the fund was
bled white, its collapse imparting a prophetic ring to Masani's apprehensions.
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