ITC shares slipped in early trade on March 12 as British American Tobacco (BAT) is preparing to offload a portion of its stake as soon as this week, as per reports.
The London-headquartered BAT, the largest ITC shareholder, has tapped Wall Street majors such as Bank of America and Citigroup to divest shares worth around $2.5 billion via the block deal route, according to the people aware of the matter.
At 9.16 am, shares of ITC were quoting Rs 401.15 on the NSE, lower by 2 percent from the previous session's closing price.
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These deals are often conducted at a discount to the current market price. According to Bloomberg, details of the transaction could still change, and the launch of the offering may spill into next week depending on market conditions, said the sources.
Analysts and traders tracking ITC said the proposed stake sale does not change the fundamental picture but could put pressure on the stock in the short term because of a supply overhang.
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It can also create an attractive buying opportunity for investors due to ITC's strong brand presence and growth prospects in its FMCG business, broking firm Jefferies, which recently downgraded the stock to "hold" from "buy", said.
The availability of such a huge block of shares means that prospective investors looking to buy a large quantity need not buy it from the open market and risk driving up the price.
A key challenge BAT faced in offloading a 4 percent stake in ITC is navigating the regulatory hurdles imposed by the Reserve Bank of India on foreign ownership in tobacco firms, which limits who can buy those shares.
The complexity of divesting ITC’s shares is immense, BAT CEO Tadeu Marroco said in December. “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, the CEO said.
On March 11, ITC stock settled lower by 1.05 percent at Rs 409.2 on the NSE. So far this year, ITC shares have corrected 12 percent. In comparison, the frontline index Nifty 50 has grown around 3 percent during the same time.
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