Govt sells 2% stake in ITC, raises Rs 6.7k cr

Held through SUUTI, stake in tobacco-to-FMCG major comes down to 9.1%

The government on Tuesday sold two per cent stake in ITC to Life Insurance Corporation of India (LIC) and earned Rs 6,690 crore (around $1 billion) as part of its divestment plan for 2016-17.

The stake, held under the so-called Specified Undertaking of the Unit Trust of India (SUUTI), was sold at Rs 275.85 per share through block deals. According to stock exchange data, the stake was picked up by LIC, LIC (Scheme 5) and LIC Allocation Contra Fund.

Shares of ITC closed at Rs 277.1, up 0.25 per cent after hitting a high of Rs 292 on the BSE.

This is the second SUUTI divestment this financial year. In November, the Centre had divested 1.63 per cent stake in engineering major Larsen & Toubro (L&T) to raise Rs 2,100 crore. State Bank of India (SBI) had picked up shares worth Rs 800 crore in the share sale.

The government now holds shares worth Rs 53,445 crore through SUUTI in ITC, Axis Bank and L&T, which it plans to divest over three years. It has appointed Citibank, Morgan Stanley and ICICI Securities to manage the SUUTI divestment.

Following Tuesday’s share sale, the SUUTI holding in ITC would drop to 9.1 per cent. LIC’s stake in the company would increase to 16.3 per cent.

Market players expressed displeasure over the government’s move to allot all the shares to LIC on Tuesday. However, a few investment bankers, privy to the thinking behind the move, said the Centre wants to proceed cautiously with the SUUTI disinvestment in order to prevent any hostile takeover.

With no visible promoter group, London-based British American Tobacco (BAT) is currently the biggest shareholder in ITC with 24.77 per cent stake. LIC is the second-biggest shareholder, followed by SUUTI.

Axis Bank and L&T, too, don’t have a promoter group and are their shares are held by many institutions and individuals.

Market players said the government seems to have timed the ITC share sale well. Shares of the company have appreciated around 20 per cent since the beginning of the year. On Tuesday ITC became the second-most valuable company in the country, after technology major Tata Consultancy Services (TCS) for the first time since April 2015.

Its market capitalisation was Rs 3.36 lakh crore. A day earlier, its market cap was Rs 3.35 lakh crore. With this, Reliance Industries fell from number two to the fourth position as its market cap fell to Rs 3.34 lakh crore from Rs 3.37 lakh crore on February 6.

Analysts, however, said ITC may not offer much upside from current levels. Most analysts on the Street predict shares of ITC stay below Rs 300 over the next year.

Following the SUUTI stake sale in ITC, the divestment proceeds of the government for the current financial year have touched Rs 37,200 crore. The Centre has revised the target downwards to Rs 45,500 crore (including strategic sales), from Rs 56,500 crore.

By March 31, the government will have to raise a little less than Rs 9,000 crore to meet its target. The divestment proceeds for this financial year are already an all-time high.