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ITC against UTI plan for stake sale

Surajeet Das Gupta & Bhupesh Bhandari

The ITC brass has come up with a proposal that Unit Trust of India should approach a financial institution to underwrite its 13.59 per cent stake in ITC rather than sell the shares to tide over the liquidity crunch it is facing. UTI chairman M Damodaran has said that UTI is willing to sell its ITC stake to an Indian or foreign party if offered a substantial premium.

The other alternative suggested by ITC is that UTI should sell its ITC shares to a consortium of financial institutions or insurance companies which already have a stake in the company.

The ITC top management has also made its clear that it is unlikely to offer a no objection certificate to BAT Industries if UTI wants to sell its equity to the tobacco giant. It will also push with UTI for an international tendering of the shares to the highest bidder in case the trust decides to sell its equity to an international investor.

An ITC source pointed out: "Various alternatives can be worked out instead of outright sale to a company. Considering the sensitivity of this industry, we must be careful as to who picks up a stake."

Under the existing regulation, BAT Industries, which holds a 31.37 per cent stake in the company, will need a no-objection certificate from the ITC board if it wants to increase its stake in the company. Moreover, the proposal has to be cleared by the Foreign Investment Promotion Board, which has made it clear that foreign investment in tobacco would not be encouraged.

Sources said that UTI cannot offer the shares only to BAT Industries and it will have to go in it for an international auction to sell the shares.

When asked by Business Standard if BAT Industries would be interested in picking up the UTI stake, a company spokesperson refused to comment.

At the moment (as of June ) apart from UTI, General Insurance Corporation and its associates control 10.66 per cent equity , followed by Life Insurance Corporation with 9.59 per cent, ICICI with 0.02 per cent and Industrial Development Bank of India with 0.12 per cent.

Foreign institutional investors control 12.01 per cent stake in the company. BAT Industries through its various investment companies and Rothmans International together control 32.78 per cent stake (Rothmans International has a 1.40 per cent equity stake). The floating stock with the public is only 21.23 per cent.

In case BAT Industries manages to get the UTI stake, it will increase its stake in ITC to around 45 per cent, which will give it virtual control over the company. That is because the equity stake of the financial institutions (including the insurance companies) will fall to 20.39 per cent from the existing 33.98 per cent.

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