No bonds issued to bail out UTI, clarifies govt

New Delhi: The central government has not taken any decision to issue bonds to bail out the troubled state-run fund manager Unit Trust of India (UTI), according to a senior government official.

He was reacting to a Business Standard newspaper report that the government had decided to issue 10-year tax-free bonds to banks and financial institutions for Rs 10,000 crore ($2.06 billion) to bail out UTI. There is no truth in the report. No decision has been taken yet, the official, who asked not to be named, said.

The newspaper, citing unnamed government officials, said the bonds could carry a coupon of 7-7.5 per cent a year and could be redeemed in the last three years before maturity. Two weeks ago, the government announced a bailout package for the cash-starved UTI, covering a massive shortfall in its ability to repay investors in its largest fund, US64, and 21 assured return schemes.

Under the package, the mutual fund manager will be divided into two companies. UTI-I will consist of US-64 and the guaranteed return funds and UTI-II the remaining schemes. UTI, which manages half the Indian mutual fund industrys assets of about $20 billion, stunned investors last year when it froze redemptions from US-64 for the rest of 2001.

UTI later partially withdrew the freeze, following a national uproar. The government has estimated the shortfall at Rs 8,561 crore for the assured income schemes and Rs 6,000 crore for the US-64 fund.