Government raises Rs 6,700 crore from 2% stake sale in ITC

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MUMBAI: The government inched closer to meeting its privatisation proceeds target for the fiscal year by selling 2% of its stake held through SUUTI in ITC on a day the cigarette major’s stock surged to a record, ranking second on India’s market capitalisation leader-board.

The sale, which would fetch the government about Rs 6,700 crore, comes amidst a 28% increase over the past two months in the share price of Kolkata-based ITC that sells four out of five locally made cigarettes.

ITC is considered a major beneficiary of the Budget proposals that raised excise taxes 6% this year, the lowest such increase in six years for the company that relies on tobacco profits to bankroll its packaged foods, cookies, stationery, and hotels businesses. Life Insurance Corporation was the buyer in the transaction in which shares changed hands at an average price of 275.85 apiece.

Through SUUTI, the government held 11.1% stake in ITC as on December 31, 2016. Shares of ITC rallied as much as 5% in morning trade to hit a record of Rs 291.95 before ending at Rs 277.10, up 0.25%.

The government aims to raise Rs 56,500 crore by selling stakes in state-owned enterprises in the current fiscal, out of which Rs 36,000 crore are earmarked to be raised from minority stake sales and Rs 20,500 crore from strategic stake sales.

However, the government has raised Rs 37,714 crore so far this fiscal from divestment. ITC is the second SUUTI sale in the current fiscal after the government sold 1.63% stake in Larsen & Toubro, generating about Rs 3,100 crore in November.

The ITC stake sale follows the recent government initiative to generate Rs 6,000 crore by selling the CPSE ETF. Although there were no major offers for sale this fiscal, the government raised funds largely by participating in the buyback offers of a raft of companies such as Nalco, NMDC, MOIL, Bharat Electronics and Coal India.

In FY2016, the government had set a record privatisation-proceeds target of Rs 69,500 crore, comprising Rs 41,000 crore in sales of minority stakes, and an additional Rs 28,500 crore in strategic sales. However, the government later reduced its target by 57% to Rs 30,000 core, citing volatile market conditions. In the end, the government was able to raise only Rs 19,659 crore in FY 2016. The government has set a record disinvestment target of Rs 72,500 crore for FY2017-18.

SUUTI has stakes in 43 listed companies, including blue-chips such as ICICI Bank, Bharat Petroleum, Hindustan Unilever, Titan and Reliance Industries.

Furthermore, the unlisted entities where SUUTI holds stakes include NSDL, STCI Finance, Over The Counter Exchange, Stock Holding Corporation of India, UTI-IAS, UTI Infrastructure Technology Services, North Eastern Development Finance Corporation and NSDL e-Governance Infrastructure.