Worries at ITC as govt weighs selling stake to bridge revenue gap

Written by Sudipta Datta | Kolkata | Updated: Dec 9 2011, 08:00am hrs
The governments plan to sell the 11.54% stake it holds in ITC has been viewed with concern in Virginia House, the headquarters of the Kolkata-based FMCG company. While a finance ministry official said the government expects to take a decision as soon as the current Parliament session is over, the company is clearly uneasy.

With its dispersed shareholding, ITC has earlier faced a takeover attempt from British American Tobacco (BAT), which still owns a significant stake in the company. Insiders fear that ITC could become a potential takeover target if the government decides to offload its equity.

Selling the ITC stake along with stakes in Axis Bank and L&T will generate crucial funds for finance minister Pranab Mukherjee in a year when the fiscal arithmetic has gone off track.

An ICICI Securities report to the government last month said even in the current depressed market, the sale of stakes held by the Specified Undertaking of UTI can net about R23,000 crore. An earlier SUUTI estimate had suggested a figure close to R40,000 crore.

No ITC executives were willing to talk on record on the issue and an email sent to the company remained unanswered. The last time the issue of a stake sale came up was in 2008 during the financial meltdown, and the company lobbied hard with the government and the move was aborted.

In order to buy back securities from the government, ITC will have to dig deep into its pocket. Its cash reserve as on March 31 was R2,426. 87 crore. The ICICI Securities valuation estimated the government stake at close to R19,000 crore.

Last year, ITC aggressively raised its stake in EIH, which runs Oberoi hotels, to 14.98%, just short of an open offer. But this was stymied when EIH brought in Reliance Industries as a white knight to pick up a similar 14.98% stake in in two tranches. This fiscal, Nita Ambani and senior RIL executive Manoj Modi joined the EIH board.

At one stage, British American Tobacco was interested in increasing its ITC stake, but has not approached the issue for a long time. BAT holds 31.6% in ITC. Domestic institutions hold 20.72 % while foreign institutions hold 15.26%.

In 2011, ITC's centenary year, chairman YC Deveshwar got shareholders' approval for another five-year term. He has been overseeing the company's diversification into FMCG, though the tobacco division is still the company's profit-driver. In the quarter ended September 2011, ITC registered a 21.5% net profit of Rs 1,514 crore on a turnover of Rs 21,486 crore.

SUUTI's shareholding in several private companies is a relic from the days when the erstwhile UTI was a key government-directed institution in the stock market in the 1990s. The shares were held by the company as an underlying for the popular US-64 and other assured return schemes of UTI. When UTIMF was carved out in 2003, the government also created the SUUTI to ring-fence the bad assets, shareholdings and most of the immovable assets of the mother company from the newborn.