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UTI holds over 50% in two companies

George Smith Alexander

Other than managing mutual funds and a bank, the Unit Trust of India holds more than a 50 per cent stake in two companies -- Palace Heights Hotels and JK Pharmachem.

The SS Tarapore Committee, which inquired into the activities of the Trust, has said that a majority holding by UTI in a company has serious ramifications for the public sector mutual fund, as it could impact UTI's own balance sheet.

"Ex-definition this (holding of over 50 per cent stake) would tantamount to these companies becoming subsidiaries of UTI which may have implications for the UTI's own balance sheet and disclosures; this is a matter which needs further examination," the committee observed.

UTI holds a 56.95 per cent in Palace Heights Hotel and a 54.83 per cent in JK Pharmachem.

In June 2001, UTI held more than 15 per cent stake in a number of companies. Its take was in the region of 20-30 per cent in as many as 22 companies, and even exceeded 30 per cent in seven companies.

UTI's investment in Palace Heights Hotels was identified by the committee as "investments in thinly traded companies" as on July 31, 2001.

The market/book value as on that date stood at Rs 100,000, whereas UTI had made investments to the extent of Rs 132.9 million in the company's equity.

Palace Heights Hotel also figures in the list of companies for which a full audit report needs to be prepared.

The committee has also said that UTI had inflated its income for the year ended June 30, 2000 by Rs 4.41 billion. The UTI board of trustees had in response to the statutory audit report for the year ended June 30, 1999, specifically undertaken not to write back interest and investment provision consequent to restructuring. The committee had observed: "It appears odd for the UTI to have resorted to the same practice in the very next year against the specific advice of the statutory auditors and the Board of Trustees' own resolution."

The statutory auditors' report for the period ended June 30, 2000 had said that the level of NPAs has come down to 7.57 per cent from 16.21 per cent in the previous year.

This was mainly due to substantial write back of interest (Rs 3.03 billion only in cases of steel industries) and investment provisions (Rs 1.38 billion only in cases of steel industries consequent upon restructuring carried out during the period under review and not due to actual receipt of either interest or instalment of principal), the statutory auditors reported.

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