British American Tobacco has launched a block deal to sell 3.5 percent equity stake in India's ITC Ltd to institutional investors for as much as Rs 16,775 crore or close to $2 billion. This will be one of the largest block deals in India and should enhance share supply overhang in ITC, according to experts.
At the lower end of the price band, the share sale is at a 5 percent discount to Tuesday's closing price. The British cigarette maker’s India unit plans to sell up to 43.69 crore ITC shares via accelerated book building at Rs 384-400.25 per share, reported CNBC Awaaz, citing sources.
On Tuesday, ITC shares fell 1.21 percent to close at Rs 404.45 on NSE, after reports hinted that BAT is set to launch the stake sale as soon as this week.
The share sale in ITC through a block trade will cut the holding of ITC's single-largest shareholder to about 25.5% from about 29%. There is a 180-day lock-in period for BAT to sell further stake in ITC.
"We look forward to remaining important shareholders in ITC as it continues its journey of growth," Tadeu Marroco, CEO of BAT said in a statement.
BAT plans to use the proceeds from ITC stake sale to buy back its own shares over a period ending December 2025, starting with GBP 700 million in 2024. "With this transaction BAT can accelerate the start of a sustainable buyback," Marroco said.
The company has hired Bank of America and Citigroup as investment banks to manage the share sale, according to reports.
BAT’s initial investment in ITC dates back to the early 1900s. "As one of India’s leading FMCG enterprises, ITC has delivered significant value for its shareholders and BAT continues to be fully supportive of ITC’s management team, performance and strategy," BAT said.
ITC's proposed stake sale, while not altering the fundamental outlook, may temporarily impact the stock due to excess supply, according to analysts. Despite the short-term pressure, Jefferies sees a potential buying opportunity given ITC's robust brand presence and growth in FMCG.
The large block of shares available could attract investors without driving up market prices. Navigating regulatory hurdles from the Reserve Bank of India poses a challenge for BAT in selling a 4 percent stake in ITC, limiting potential buyers in the tobacco industry.
The complexity of divesting ITC’s shares is immense, BAT CEO Tadeu Marroco said in earlier, in December 2023. “There are specific RBI approvals that are required in respect of any action-taking about our stake, and this adds a significant level of additional bureaucracy," he said. As a result, “the universe of buyers is limited" for ITC shares, he said.
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