ITC shares dip 4% on news of BAT shareholding reduction

8 Feb 2024 , 05:47 AM

Following the announcement by British American Tobacco (BAT), the company’s largest stakeholder, that it was trying to complete the regulatory procedure to reduce its shareholding in the multinational conglomerate, the ITC shares slumped 4% in afternoon trading.

ITC closed at ₹414.45 on the NSE at 3:31 pm, down 4.02%.

‘As part of our ongoing efforts to improve balance sheet flexibility, we continue to evaluate our holding in ITC on a regular basis. We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital,” BAT said in its Q4 earnings on February 8.

BAT owns a 29.03 % share, or ₹1.5 lakh crore, in ITC.

The corporation stated that in order to have the freedom to monetize a portion of its holdings, it has been working for some time to finish the regulatory process. BAT stated that it will notify shareholders of any new information as soon as it becomes available.

The value of the shares offloaded at ITC’s current market cap would be around ₹20,760 crore if BAT were to reduce its position by four percentage points to have a 25 % shareholding in the company.

According to BAT’s filing, its portion of the post-tax results for the ITC increased by 19.8% to £616 Million in 2023 from £514 Million in 2022.

In December 2023, BAT announced that it would think about reducing its 29.02% ownership in the company that sells cigarettes to hotels.

‘We may exercise veto power and maintain a strategic influence over ITC without holding more than 25% of the company’s shares. We have more than that now’, British American Tobacco’s (BAT) CEO Tadeu Marroco had previously stated.

Divesting ITC’s shares is extremely complicated and has two main problems. According to Marroco in December, India places restrictions and constraints on foreign ownership in domestic tobacco companies.

‘Any action regarding our stake requires specific approvals from the RBI, which adds a significant amount of additional bureaucracy,’ he continued. The CEO claimed that as a result, ‘the universe of buyers is limited’ for ITC shares.

Analysts claim that may be accurate when looking for strategic purchasers. Nevertheless, institutional investors may have a sufficient appetite for the stock.

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