British American Tobacco (BAT) has said it is actively working to sell a part of its 29.03 per cent stake in ITC — an announcement that sent the shares of the Calcutta-based cigarette-to-hotels conglomerate tumbling to a nine-month low at one stage in a very skittish market.

“There is space for us to reduce our shareholding,” BAT chief executive Tadeu Marroco told investors in London but said the process was complicated and it was difficult to say when exactly a stake sale might be possible.

Marroco, however, said BAT would retain a 25 per cent stake that will protect its veto rights on ITC board resolutions.

The ITC stock sank 4.04 per cent to Rs 414.45 at the close of trading on the BSE after hitting a day’s low of Rs 408.65.

BAT could sell as much as 4 per cent — valued at Rs 20,150 crore at current prices — as it initiates efforts to monetise a part of its stake that it has held for over a century.

Speculation about a stake sale in ITC has swirled for over a year with the maker
of Dunhill and Lucky Strike cigarettes unwilling to come out with a categorical statement to confirm or deny the rumours.

On Thursday, BAT for the first time articulated its intent to ‘release and reallocate’ some of the capital deployed in ITC.

The announcement sent the BAT stock soaring by over 7 per cent to 2491 pence on
the London Stock Exchange late on Thursday.

Last year, the tobacco giant, which has been weighed down by a debt of £39.73 billion, disappointed investors when it dropped plans for a fresh share buyback programme in order to focus on paring debt and investing in new products.

Marroco said: “We continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC.

“We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital.”

Later at a conference call, Marroco said BAT planned to retain a ‘level of influence’ on ITC going forward even as it intended to monetise a part of its holding.

“We want to maintain a level of influence in ITC…we need to have a minimum 25 per cent shareholding to keep our veto rights… This means that given the fact we have above 29 (per cent), there is space for us to reduce our shareholding,” he added.

It is unlikely that ITC will sell a 4 per cent stake at one go. The process is also complicated by the ban on foreign direct investment (FDI) in the tobacco business, a restriction that will severely limit the pool of potential buyers for such a large stake.

Marroco said BAT has been working with people ‘on the ground’ – mainly in the Reserve Bank of India -- and with the help of ITC to expedite the process.

He also expressed his admiration for ITC’s management and the business model that they have built. “It is a fantastic company, well-run, well managed… a very fast growing company in a very fast growing market housed in the most populous country in the world.”

However, he clearly hinted that BAT – a completely tobacco-focused entity – may not stay invested in ITC’s hotels division when it is spun off into a separate entity.

“There is no strategic intent within BAT to become a minority shareholder of a hotel in the Indian market,” he said, adding that the conglomerate would decide what to do with its stake in the hotels arm when the issue comes before the board.