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MUMBAI, Jan. 1

UNIT Trust of India may have a tough job in restructuring its Unit Scheme-64. Close to 20 per cent of the US-64 portfolio comprises equity shares of two companies belonging to one group and many other instruments that the scheme invested in are considered junk now.

In terms of market value, 13.86 per cent of the investment is in equity shares of Reliance Industries and 4.7 per cent is in Reliance Petroleum. That is more than Rs 2,500 crore in value terms as on December 28.Altogether, the scheme has put money in investment instruments, including equity shares, preference shares, NCDs, special deposits and term loans, of more than 500 companies. Government securities maturing in 2004 constitute 26.16 per cent of the portfolio.

Other top companies in the portfolio are ITC (5.89 per cent), Infosys Technologies (2.28 per cent), HLL (2.28 per cent), HDFC (2.26 per cent), Jindal Iron and Steel (2.1 per cent) BPCL (1.4 per cent) and SBI (1.35 per cent).

Besides equity and debt, US-64 also holds fixed assets worth Rs 192.73 crore. The value of investments in ``various other companies'' stood at Rs 136.32 crore (one per cent). The unit capital of the scheme stood at Rs 13,646 crore as on December 28.

UTI proposes to re-position the scheme as a balanced fund and plans to reduce the equity exposure to a maximum of 55 per cent from the current 61 per cent. The investment floor in equity would be 25 per cent. The revamp also envisages separating the trustee and asset management functions. The restructuring would be done by December 31, 2002.

The trust has two ways to reduce the equity investment - through sale to strategic investors or sale to promoters. Given the current economic and market conditions, the chances of UTI managing to sell back shares to promoters appear rather slim. It may also find it difficult to find strategic investors for the same reason. Analysts say that many of the companies in the portfolio are duds. ``It would be very difficult for UTI to salvage anything from the instruments of such companies,'' said an analyst.

One way of reducing the share of equity in the portfolio is to trim the exposure to the Reliance group. But that is another difficult proposition. Large-scale unloading of RIL or RPL shares in the market would create a liquidity overhang in the counters and that, in turn, would affect the NAV of the scheme, he said.

According to a Merrill Lynch Global Securities analysis, however, UTI successfully postponed redemption pressure by promising effective guaranteed returns for unit-holders who do not redeem until May 2003.

The analysis estimates the Government's liability to be around Rs 7,100 crore in May 2003 if the NAV of US-64 remains at the current levels. Merrill Lynch expects UTI to sell equity worth about Rs 450 crore in the market.

It also feels that other assured return schemes of the trust may also need to be bailed out. ``UTI has 16 assured return schemes with an aggregate unit capital of Rs 17,814 crore which will mature over the next three years. Given the shortfall in the scheme, UTI will have to dip into the development reserve fund, which has a corpus of Rs 1,535 crore. However, that is unlikely to be sufficient to meet the redemptions if the asset do not appreciate by the time the schemes mature,'' it said.

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