Wary of British American Tobacco, govt may not budge on ITC stake sale

Fears a 2018-like episode when the foreign shareholder blocked proposal to issue Esops

The government does not plan to sell its stake in ITC, according to a top government official, as it fears increased influence of British American Tobacco (BAT) in operations of the tobacco-to-hospitality conglomerate. This comes at a time when India is privatising public sector undertakings (PSUs), inviting global players to take part in the drive.
 
The government has not sold any stake in ITC, held through Specified Undertaking of the Unit Trust of India (SUUTI), since June 2018.
 
“That’s an irony. The government has taken a bold step to privatise PSUs, and limit their presence, but it doesn’t want to sell its stake in a private company,” the official said.
 
This is despite the fact that it’s clear foreign companies will be allowed to participate in privatisation of PSUs, he said.
 
The government’s SUUTI holding in the cigarette maker has been 7.9 per cent since June 2018. The foreign direct investment (FDI) policy prohibits any foreign investment in tobacco manufacturers.
 
The government fears reducing its holding in the homegrown company would lead to London-headquartered BAT increasing its influence in the functioning of ITC, said the official quoted above. It wants to avoid a 2018-like episode when BAT had tried to block ITC’s plan to grant stock options to employees.
 
BAT holds over 29 per cent stake in the Indian firm.

 
The government has seen its revenues dwindle due to the Covid-19 pandemic, and has been struggling to complete its big-ticket privatisation of PSUs such as Bharat Petroleum Corporation.
 
It has been garnering divestment receipts through offer for sale in companies, the recent one being in Indian Railway Catering and Tourism Corporation. It has also been reducing its SUUTI holding in Axis Bank, and plans to lower its stake further in the third-largest private sector lender.
 
Since June 2018, the government has lowered its stake, held through SUUTI, in Axis Bank from 9.6 per cent to 3.9 per cent, and intends to bring it down to 3.2 per cent.
 
During the same period, government’s SUUTI holding in ITC has remained constant at 7.9 per cent, and indirect holding through state-owned insurance companies has been over 28 per cent in the same period.
 
The government is soon expected to announce a privatisation policy that will lay the road map for privatising PSUs and limit their presence to just one in non-strategic sectors.
 
The political executive is yet to decide whether SUUTI stake in ITC should be sold, the official said.