Kolkata: In what is being seen as an attempt to provide cash to a wholly owned subsidiary so as to enable it to make further strategic investments, ITC Ltd has paid Russell Credit Ltd at least Rs340 crore to buy from it substantial investments in shares of at least three listed companies: EIH Ltd, Hotel Leelaventure Ltd and VST Industries Ltd.
The first two firms run premium hotel chains while the third makes cigarettes, and thus competes with ITC, which has interests in cigarettes, consumer goods, hotels and paper.
Graphic: Yogesh Kumar/Mint
Like ITC, VST, too, is one-third owned by British American Tobacco Ltd.
On 30 March, Russell Credit sold to ITC at book value—or the price at which the shares were acquired—58.86 million shares of EIH, 32.02 million shares of Leelaventure and 1.57 million shares of VST, raking in Rs342.68 crore. The current market value of these shares is around Rs978 crore.
Through Russell Credit, ITC has been making “long-term investments in strategic thrust areas”.
Earlier through Russell Credit, and now directly, ITC holds 14.98% in EIH, 10.2% in VST and 8.48% in Leelaventure, according to disclosures made by these companies to the stock exchanges. Russell Credit continues to hold 600,000 shares in VST, giving it an equity stake of 3.89%.
The point of the share transfers was to put more cash in the hands of Russell Credit, according to a tax consultant, who did not want to be named because of his proximity to ITC. “The sale of shares indicates Russell Credit is planning to make more strategic investments, for which it needs funds,” he said, adding that ITC has already provided it equity funding of Rs646.48 crore, and that Russell Credit has the biggest equity capital among all ITC subsidiaries.
“We have consolidated our strategic investments in ITC’s books,” the company said in a statement, refusing to make any further comments.
ITC began building its stake in EIH 10 years ago. It invested in the shares of VST in 2001, playing white knight, when the company was faced by a hostile takeover bid from a group of Mumbai stockbrokers.
ITC’s investment in shares of Leelaventure is relatively new: the stake was amassed over the last one-and-a-half years. Over the last 12 months, ITC has ramped up its stake in Leelaventure by close to 5 percentage points to 8.48%. There’s been no significant change in its holding in the two other firms during this period.
ITC chairman Y.C. Deveshwar has maintained that his firm did not have any plan to launch a hostile takeover bid for EIH or Leelaventure. However, if these firms ever wished to partner ITC for business expansion, the substantial equity stake would come handy, he has been saying.
Deveshwar is a director of HT Media Ltd, which publishes Mint.
The managements of both EIH and Leelaventure have earlier told Mint that they did not feel threatened by ITC’s equity stakes in their firms and that they did not have any immediate plan of joining forces with it.