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FinMin backs UTI's bid to sell 11.87% ITC stake

Tamal Bandyopadhyay in Mumbai

The finance ministry is in favour of allowing the Unit Trust of India to sell its 11.87 per cent (2,93,84,118 shares) equity stake in ITC Ltd to help it tide over the liquidity crisis.

"The sale can cut the government's burden by as much as Rs 50 billion at one stroke. Besides, this will also open up doors for more such deals," a source at North Block said under condition of anonymity.

When contacted, UTI chairman M Damodaran refused to comment on the development. On an earlier occasion, he had told Business Standard that UTI is ready to sell its stake in ITC if it gets a "huge premium."

According to sources, BAT Industries, which holds a 32.5 per cent stake in ITC, is ready to pay any amount to pick up the UTI stake. It is, however, not known whether it has formally approached UTI yet.

"If the government wants to lessen its burden and at the same time save the investors, the best way to do this is to allow UTI to sell the ITC stake to BAT," sources said. UTI is the largest Indian investor in ITC.

However, the government is likely to tread this politically sensitive path with caution.

Also, the matter will have to ultimately go to the Foreign Investment Promotion Board. Though 100 per cent foreign direct investment is allowed in the tobacco industry, the government had given a commitment to Parliament that no fresh FDI in tobacco will be permitted.

This means BAT will have to obtain clearances from the ITC board - and the board is unlikely to clear the matter. Commerce and Industry Minister Murasoli Maran has also said BAT cannot be allowed to hike its stake in ITC without the latter's permission.

According to an estimate, on July 1, the ITC stake sale at its market price (Rs 668.45) would have propped up the net asset value of its flagship US-64 from Rs 6.50 to Rs 7.30 and infuse Rs 8.35 billion in the scheme. For UTI as a whole, the fund infusion would have been Rs 19.72 billion.

on Thursday, the ITC scrip closed at 638.75 on the Bombay Stock Exchange. If UTI can sell its stake at Rs 1,500 per share, the US-64 NAV would go up to Rs 8.21. If the sale takes place at even a higher price of Rs 1,800 per share, the NAV will go up further to Rs 9.35 against the face value of Rs 10.

At Rs 1,500 per share, the total fund infusion in UTI would be to the tune of Rs 44.24 billion and at Rs 1,800 per share, it would be Rs 53.09 billion.

As on June 30, the UTI needed over Rs 80 billion to cover the current shortfall in its assured-return plans.

This is inclusive of a sum of Rs 37.40 billion being the negative reserves in its 14 monthly income plans and Rs 44.76 billion to cover the negative returns in its US-64 scheme.

The Centre has provided Rs 5 billion to bridge the gap between the NAV and the administered repurchase price of the US-64 units. The provision was part of its supplementary demand for grants this fiscal. Besides, it has also extended a guarantee based on which UTI has raised bank loans to meet the redemptions of its MIPs in June.

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