BAT's Massive ₹3,800 Crore ITC Hotels Stake Sale: What Investors MUST Know Now!

BAT Sells Major Stake in ITC Hotels

British American Tobacco, a prominent cigarette manufacturer based in the United Kingdom, has divested a significant 9% stake in ITC Hotels. The transaction, executed through block trades, raised more than ₹3,800 crore for the company, reducing its direct shareholding in the Indian hospitality major to 6.3%.

Key Details of the Sale

• British American Tobacco completed the accelerated bookbuild process, selling 18.75 crore ordinary shares in ITC Hotels.
• The net proceeds from this block trade amount to approximately ₹38.2 billion (around £315 million).
• These funds are earmarked to help British American Tobacco progress towards its stated target of a 2-2.5x adjusted net debt to adjusted EBITDA leverage corridor by the end of 2026.
• The shares were sold by British American Tobacco's wholly-owned subsidiaries: Tobacco Manufacturers (India), Myddleton Investment Company, and Rothmans International Enterprises.
• HCL Capital Private Ltd and Nippon India Mutual Fund were among the entities that purchased these shares.
• The sale occurred at ₹205.65 per share, representing a slight discount of about 1% compared to ITC Hotels' previous day's closing price of ₹207.72 on the NSE.

Strategic Rationale and Background

• British American Tobacco's Chief Executive Tadeu Marroco stated that a direct stake in ITC Hotels is not a strategic holding for the company.
• He emphasized that the proceeds will further support the company's progress towards its 2026 leverage corridor targets.
• The hotel business was demerged from the diversified conglomerate ITC Ltd earlier this year, with ITC Hotels Ltd becoming a separate entity.
• The equity shares of ITC Hotels were listed on the NSE and BSE on January 29, 2025.
• ITC Ltd holds approximately 40% of the new entity, while its shareholders directly hold the remaining 60% proportionate to their ITC Ltd shareholding.
• British American Tobacco had previously indicated in February this year its intention to divest its stake in ITC Hotels at the 'best moment' as it has no interest in being a long-term shareholder of a hotel chain in India.
• British American Tobacco remains the largest shareholder of ITC Ltd, holding a 22.91% stake.

ITC Hotels' Business Portfolio

• ITC Hotels currently manages a portfolio of over 200 hotels, with 146 operational properties and 61 in the development pipeline.
• The hospitality chain operates under six distinct brands: ITC Hotels, Mementos, Welcomhotel, Storii, Fortune, and WelcomHeritage.

Impact

• This divestment allows British American Tobacco to reduce its financial leverage and focus on its core tobacco business, while also potentially broadening the institutional investor base for ITC Hotels.
• Impact rating: 7/10

Difficult Terms Explained

• Block trades: Large transactions of securities traded privately between two parties, often bypassing public exchanges. This facilitates the sale of a substantial number of shares at once.
• Accelerated bookbuild process: A method used to quickly sell a large number of shares, typically by institutional investors, where demand is gathered rapidly to set a final price.
• Adjusted net debt/adjusted EBITDA leverage corridor: A financial metric used to assess a company's debt burden relative to its earnings before interest, taxes, depreciation, and amortization, with specific adjustments applied. A 'corridor' refers to a target range for this ratio.
• Demerger: The separation of a company into two or more distinct entities. In this case, ITC's hotel business was separated into a new company, ITC Hotels Ltd.
• Scrip: A common term for a stock or share certificate; often used informally to refer to a company's stock or security.