British American Tobacco (BAT) is selling a 3.5 per cent stake or 43.66 crore shares in ITC through block deals to potentially raise over $2.1 billion, yielding to shareholders pressure to launch a buyback programme by partly monetising its century-old holding in the Indian company

BAT will continue to hold a 25.5 per cent stake in ITC post the transaction and remain the single largest shareholder in the tobacco-to-hotel conglomerate.

The ITC stock closed at Rs 401.9 on the NSE, down Rs 7.5 or 1.9 per cent ahead of the proposed sale.

BAT is offering a 5 per cent discount with a price range of Rs 384 to Rs 400.25 a piece.

The block deals with institutional buyers by an accelerated book-building process to raise close to Rs 17,000 crore are likely to be one of the largest such transactions on the Indian bourses.

The ITC stock has corrected 6 per cent since February 8 when BAT first spelt out its plans to ‘‘release and reallocate’’ a part of its 29.03 per cent holding in ITC.

“BAT intends to use the net proceeds of the block trade to buy back BAT shares over a period ending December 2025, starting with £700 million in 2024. We will continue to allocate operating cash flow to fund investment in our transformation and to further deleverage,” BAT said in a regulatory filing.

The maker of Dunhill and Kent cigarettes came under intense shareholder scrutiny after it stopped a buyback programme in 2022 and focused on reducing debt amid a high-interest rate regime.

Pressure started mounting on Tadeo Marroco, who became the chief executive of BAT after a stint as CFO, to sell ITC shares, the most valuable investment on the company’s balance sheet.

However, Marroco defended BAT’s strategy to remain invested in ITC and maintain at least a 25 per cent stake allowing it to keep veto power in the board.

In the regulatory filing on Tuesday, the London-based company reiterated why it would want to remain invested in ITC, a stand earlier spelt out by Marroco and reported by The Telegraph.

ITC is a valued associate of BAT in an attractive market with long-term growth potential.

BAT’s initial investment in ITC dates back to the early 1900s and the two companies have a longstanding, mutually beneficial relationship, it said.

BAT reminded how ITC has delivered significant value to its shareholders and it continues to back the Indian management led by chairman Sanjiv Puri.

As one of India’s leading FMCG enterprises, ITC has delivered significant value to its shareholders and BAT continues to be fully supportive of ITC’s management team, it added.

Commenting on the proposed stake sale, Marroco said on Tuesday, “I am confident that ITC, under the stewardship of its current management, will continue to create further value for its shareholders.”

We look forward to remaining important shareholders in ITC as it continues its journey of growth. With this transaction BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage towards a new target range of 2-2.5x adjusted net debt / adjusted EBITDA.”

No comments were forthcoming from ITC management till going to press.