Monday, March 19, 2007

UTI Bank to set up $500 mn offshore fund

The effects of the change in the pass-through status of domestic private equity firms are already showing on the players concerned. UTI Bank is now planning to set up a $500 mn-offshore fund. The bank had earlier received SEBI approval to start a PE fund in India as a domestic venture capital. It will now file for a fresh application as a foreign venture capital investor. The proposed $500 mn fund will also mark the entry of UTI Bank in private equity.

Of the total equity of $500 mn, UTI Bank will provide $50 mn equity as its principal sponsor. The remaining part of the corpus will be raised from foreign institutional investors and the like. The investments will be made through the bank’s subsidiary UBL AMC.

Since the mandate of the proposed fund will be to invest in infrastructure projects, it does not fall in the nine sectors identified in this year’s budget where venture capital funds registered in India will continue to enjoy a pass-through status. Tax exemptions will now only apply to biotechnology, nanotechnology, IT hardware/software, R&D for new chemical entities, seed research, dairy, poultry bio-fuels and large hotel-cum-convention centres. Till now, private equity funds were exempted from I paying tax with its investors paying capital gains tax. According to the change in rules, the fund will also pay taxes if its investment does not fall in the nine specified sectors.

Read the article in The Economic Times.

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