Mumbai: British American Tobacco Plc (BAT) said it will sell 3.5% stake in ITC Ltd on Wednesday, in block deals that could total as much as ₹17,484 crore ($2.11 billion).
BAT, which holds over 29% in the cigarettes-to-hotels conglomerate, will sell the shares at ₹384–400.25 each, implying a 4–5% discount to ITC’s Tuesday closing price of ₹401.90 on the NSE. ITC shares fell 1.83% earlier in the day, while the benchmark Nifty index closed unchanged.
The lock-in period for the deal is 180 days, according to a term sheet seen by Mint.
“With this transaction, BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage towards a new target range of 2–2.5X adjusted net debt/adjusted Ebitda,” said Tadeu Marroco, chief executive of BAT. He added that BAT looks forward to remaining important shareholders in ITC as it continues its journey of growth.
BAT had net debt of approximately over $53 billion, Mint reported on 14 February.
The British multinational also said that ITC is a valued associate of BAT in an attractive market with long-term growth potential where BAT benefits from exposure to the world’s most populous market.
BofA Securities India Ltd and Citigroup Global Markets India Pvt. Ltd are the book runners for the deal. Mint had reported about the impending announcement on Tuesday.
BAT said its wholly owned subsidiary Tobacco Manufacturers (India) Ltd intends to sell up to 436,851,457 shares in ITC to institutional investors in an accelerated bookbuilding process. After the sale, BAT will remain a significant shareholder of ITC, with a 25.5% holding. The company had told investors on 9 February that its shareholding will not fall below 25%.
As of the end of December 2023, BAT’s subsidiaries—Rothmans International Enterprises Ltd, Myddleton Investment Co. Ltd, and Tobacco Manufacturers (India) Ltd—collectively held over 29% stake in ITC.
BAT said it plans to use the money to buy back shares till December 2025, starting with £700 million in 2024. In 2022, BAT had launched an up to £2 billion buyback, which it did not renew last year.
The multinational said it will continue in directing operating cash flow towards funding investments in its transformation and continuing deleveraging efforts.
So far, BAT had resisted paring stake in ITC as Indian laws do not permit a foreign strategic company to make a fresh investment in a tobacco company. Though it can sell its stake now, BAT would not be allowed to buy more stake, according to the current Indian law, Jefferies had said in a report dated 18 December.
Several MNCs have divested stakes in their Indian ventures as share prices soared. The proceeds are utilized for various purposes, including debt repayment.
Over the past month, Conagra Brands announced the sale of its controlling stake in Agro Tech Foods, while Japan’s Sumitomo Wiring Systems sold a 4.4% stake in Samvardhana Motherson International.
All said, “BAT would also directly hold a 17% stake in the hotels business, once it is demerged and separately listed”, said Jefferies India report dated 18 December. BAT also mentioned that it has no plans to stay in the hotel business, suggesting the company might be open to a stake sale following the listing of ITC Hotels, the brokerage added.