Suuti stake in ITC may go to insurance firms

Board of FMCG major likely to push for current institutional stakeholders

The government might sell the 11.72 per cent stake held by the Specified Undertaking of Unit Trust of India (Suuti) in ITC to state-run insurance firms, which already have shares in the company.

This is because the board of directors of the tobacco-to-FMCG firm is likely to oppose any new institutional investor buying a significant stake. The board needs to pass an enabling resolution before a block deal concerning the stake is finalised.

A senior executive of an insurance firm with stake in ITC told Business Standard the government would probably look at an inter-institutional transfer. "Any party which agrees to buy substantial stake in ITC will have to be approved by the board, which will prefer an existing investor rather than an outsider," he said.

Life Insurance Corporation of India (LIC), National Insurance Company, Oriental Insurance Company, General Insurance Corporation, and the New India Assurance have stakes in the company.

LIC could have been the first choice for the government to dispose of the Suuti stake, but the insurance firm has almost touched the 15 per cent shareholding limit - at present it has 14.4 per cent stake in the company. Unless the insurance regulator gives special permission to LIC, which is highly unlikely, the field will be open for the other four state-run insurance companies.

London-based British American Tobacco (BAT) has 29.74-per cent stake. But BAT officials said they would not be able to increase stake due to the blanket ban on foreign direct investment (FDI) in tobacco.

"The ban on FDI in the tobacco sector in India would preclude us from increasing our holding in ITC," William Hill, a BAT spokesperson said.

He did not respond to a question on whether or not the company would be interested if FDI was allowed in the sector.

LIC could have been the first choice for the government to dispose of the Suuti stake. However, the insurance firm has almost touched the 15 per cent shareholding limit - at present it has 14.4 per cent stake in the company.

"Only the other insurance companies have the bandwidth to buy the stake from Suuti," said an executive.

According to a notification up on the Suuti website last week, the government has invited bankers to manage the stake sale.

The total value of Suuti's holdings, which includes 43 listed firms and eight unlisted ones, is likely to be ~60,000-crore.

The bulk of the value is with three blue-chip companies, Larsen & Toubro, ITC and Axis Bank. The combined value of investment in these three companies is about ~49,881 crore, and only in ITC is ~22,319 crore.

The executive said when there had been a proposal to reduce Suuti, or Unit Trust of India (UTI) - as it was earlier known, stake in ITC, the board of directors had suggested the other financial institutions should buy it.

A senior market analyst said as the government was trying to get insurance companies publicly listed, shares of blue chip companies such as ITC would help them.

"Having more shares of a company like ITC does not hurt It has given huge returns and it will boost up the share price of the insurance firms when they are listed," he said.

Union Finance Minister Arun Jaitley had suggested listing of public sector insurance companies in the Budget.

OLD OWNERS, NEW STAKES

ITC board of directors would push for insurance companies with stake in the firm to pick up Suuti’s shares

• 1.22%
  

National Insurance Company
 

1.50%
Oriental Insurance Company
 

1.78%
General Insurance Corporation
 

1.84%
New India Assurance
 

14.47%
Life Insurance Corporation

HURDLES

• LIC would have been the first choice to pick up stake but it already holds 14.47% shares and has a limit of 15%
   
• British American Tobacco has a 29.7% stake but can’t pick up more shares as FDI in tobacco is not allowed

ADVANTAGE BUYERS

• Acquiring stake in a blue-chip company like ITC would help insurance firms when they go for listing, as announced in the Budget