Markets
BAT's stake sale in ITC is almost here
Summary
- The deal is likely to net British American Tobacco more than ₹20,000 crore
MUMBAI : British American Tobacco (BAT) Plc is preparing for its long-awaited stake sale in ITC Ltd in the next two weeks, two people aware of the matter said.
The British multinational plans to sell 4% in the Indian company at ₹380-390 per share, a 5-8% discount to Monday’s closing price of ₹409, the people said on condition of anonymity.
Around 499 million shares worth around ₹20,000 crore (over $2.4 billion) are expected to change hands, in the biggest block deal since 2021 when Bosch Ltd saw block deals of ₹29,000 crore for 19.98 million shares.
Buyers of ITC shares may include ICICI Prudential Mutual Fund and O3 Securities, the people cited above added. Spokespersons for BAT, ICICI Prudential Mutual Fund and O3 did not respond to requests for comment.
However, the timeline of stake sale may change based on market conditions, the people cited above said. BAT is one of ITC’s biggest shareholders with a holding of 29%.
The stake sale follows BAT chief executive Tadeu Marroco’s 8 February statement during the company’s earnings call that the company was focussed on improving its “financial flexibility".
“We continue to seek and evaluate all opportunities to enhance balance sheet flexibility. And as part of this, we regularly review our stake in ITC. We recognize that we have a significant shareholding, which offers us the opportunity to release and reallocate some capital," he said at the time.
BAT has been trying to reduce its debt. On 18 December, Jefferies said its stake in ITC at approximately $20 billion is nearly 30% of its own market cap. BAT also had net debt of approximately over $53 billion, Mint reported on 14 February.
“Our shareholding in ITC has existed in one way or another since the early 1900s and was subject to numerous share capital changes and regulatory restrictions. We have been actively working on some time on completing the regulatory process required to give us the flexibility to monetize some of our shareholding," Marroco had said. BAT needs RBI approval to trim its stake.
BAT has so far resisted paring stake in ITC as new Indian FDI laws in tobacco do not permit a foreign strategic company to make a fresh investment.
Though it can sell stake now, BAT would not be allowed to re-purchase additional stake according to current Indian law, Jefferies said.
A big investor paring stake is usually seen as a negative, and this was an overhang for ITC’s stock.
BAT told investors on 9 February that its shareholding will not fall below 25% stake. As of the end of December 2023, BAT’s subsidiaries— Rothmans International Enterprises Ltd, Myddleton Investment Company Ltd, and Tobacco Manufacturers (India) Ltd—collectively held 29% stake in ITC.
As per reports, BAT is working with Citi and Bank of America for the block deal and the value unlocking might help it reduce leverage and resume a share buyback programme. In 2022, BAT launched an upto £2 billion buyback which it did not renew last year.
Several MNCs hace divested stakes in their Indian ventures as share prices soared. The proceeds are utilized for various purposes, including debt repayment.
Over the past month, Conagra Brands announced the sale of its controlling stake in Agro Tech Foods, while Japan’s Sumitomo Wiring Systems sold a 4.4% stake in Samvardhana Motherson International.
