The proposed stake sale by British American Tobacco (BAT) in ITC will not need any prior approval from the Central government if the stake is being offered to domestic entities and investors, said compliance experts.
However, if the potential buyer is a foreign entity then the same would have to be approved by the government, experts added.
BAT CEO Tadeu Marroco on February 8 said that the tobacco company is looking to monetize its stake in India’s largest cigarettes maker ITC, where it has been a shareholder since the early 1900s. The ITC stake sale plan is part of BAT's efforts to create financial flexibility for the company at a time when cost of capital has risen sharply due to high interest rates.
The development assumes significance as Tobacco is one of the few restricted sectors in terms of Foreign Direct investment.
"The pricing guidelines applicable have to be followed by BAT while selling the stake. Apart from that, the British company may be subject to capital gains tax for the stake," said a foreign exchange management expert.
BAT owns a little more than 29 percent in ITC, according to shareholding data.
Also depending on the quantum of stake , there could be other compliance issues.
A securities market lawyer said if a large quantum of stake is being sold by BAT to a single entity then the transaction will have to be looked into from a control point of view.
"If the buyer is a single entity and the stake being offered is in double digits, the takeover code norms must be adhered to," the expert added.
To be sure, Marroco on Thursday told analysts that the company wants to continue to keep a level of influence in ITC, which means it will look to keep its shareholding at 25 percent initially.
“Local regulations require us to keep our stake at 25 percent to have veto rights. Our current stake is above 29 percent so there is space for us to reduce stake,” he told analysts in a post earnings call.
Shares of ITC fell 4.04 percent on the BSE to 414.45 per share after BAT announced its intent to sell part of its stake.
As of the stock’s closing price on Thursday, the stake sale by BAT to bring its shareholding down to 25 percent could fetch the tobacco maker Rs 22,240 crore.
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