British American Tobacco (BAT) CEO Tadeu Marroco on February 8 said that while the company is working on partially monetizing its shareholding in India’s biggest cigarette maker ITC Ltd, it is very difficult to give a timeline for the stake sale.
BAT is currently the biggest shareholder in ITC, holding 29.03 percent. British American Tobacco plc is a British multinational company that manufactures and sells cigarettes, tobacco and other nicotine products. BAT's cigarettes portfolio includes brands such as Dunhill, Lucky Strike and Rothmans.
Shares of BAT were trading over six percent higher in London on February 8, following the announcement of its intent to monetize the ITC stake.
Addressing a post-earnings analyst call, Marroco said that 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.
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“While we are looking to organically drive down leverage, we are also looking to find more ways to create financial flexibility,” he said.
Marroco added that over the last two years ,BAT has divested many assets and exited several markets and generated some cash but those divestments have not been very meaningful.
“ITC is one of the major assets on our balance sheet,” said Marroco.
The BAT CEO commented 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.
“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 said.
“We are very supportive of our shareholding in ITC. It is a fast growing company; has a very good policy on distributing dividends and the share price has doubled in the last three years,” added Marroco.
Shares of ITC closed 4.04 percent lower 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 British tobacco maker about Rs 22,240 crore.
“Our shareholding in ITC has existed in one way or another since the early 1900s and is subject to numerous share capital changes and regulatory restrictions. We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding,” said Marroco.
Commenting on the complexity of the stake sale process, Marroco said that BAT has had over a 100 years of history with ITC.
“ITC has grown organically, there have been share splits etc. We have had to reconstruct this whole history. We are working with the central bank and people on the ground," he said.
Adding to the complexity of the share sale are India’s foreign direct investment rules which since 2010 have banned any foreign ownership of tobacco manufacturing companies in India. This rules out foreign strategic buyers from picking up BAT’s stake in ITC.
Apart from its stake in ITC, BAT will also end up holding a stake in the hotels business of ITC, which is in the process of being demerged.
The board of ITC on August 14, 2023, approved the demerger of the hotels business, with an indicative timeline of listing of the new entity in about 15 months. ITC shareholders are to hold about 60 percent direct stake in ITC Hotels (proportionate to their stake in ITC) and the remaining 40 percent stake to continue with ITC.
Marroco indicated that BAT will most likely monetize this hotels business stake too, post the demerger.
“There is no strategic intent from BAT to be a minority shareholder of a hotel company in the Indian market. The decision on this will be taken by the board when the time comes,” he said.
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