ITC‘s share price tumbled 5% following an announcement by its largest shareholder, British American Tobacco (BAT) that it intended to reduce its stake in the cigarettes-to-hotels conglomerate.

What Happened: BAT said in its Q4 earnings report on Thursday that it was actively pursuing avenues to enhance balance sheet flexibility, which includes reviewing its stake in ITC.

With BAT currently holding a 29.03% stake in ITC, valued at ₹1.5 lakh crore, the company aims to complete the regulatory process to monetise a portion of its shareholding.

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Why It Matters: The potential reduction in BAT’s stake by 4% down to 25%, could involve offloading shares valued at about ₹20,760 crore based on ITC’s current market cap.

In December 2023, BAT said it was considering reducing its stake in ITC, stating that it did not need to maintain over 25% shareholding for strategic influence.

Regulatory Issues: However, CEO Tadeu Marroco highlighted the complexity of divesting ITC shares due to regulatory restrictions imposed by India, particularly regarding foreign ownership in domestic tobacco companies. These restrictions, coupled with specific central bank approvals required for stake-related actions, pose significant bureaucratic challenges and limit potential buyers for ITC shares.

While strategic buyers may face constraints, institutional investors could still show interest in the stock, according to analysts.

Price Action: ITC’s share price was down 5.03% at ₹410.10 in afternoon trade on Thursday.

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