India's ITC settles higher as BAT's $2 billion share sale sails through

BENGALURU (Reuters) -Indian FMCG and tobacco giant ITC's shares settled more than 4.5% higher on Wednesday after rising over 8% during the session, as top shareholder British American Tobacco's $2 billion stake sale in the company went through smoothly, removing a key overhang on the stock.

BAT completed the sale, India's third-largest block deal ever, disposing 436.9 million shares, or roughly 3.5% of ITC's outstanding shares, for 166.9 billion rupees (about $2 billion) on Wednesday.

The Singapore government bought 91.5 million shares, representing 0.7% of ITC's outstanding shares, while ICICI Prudential Mutual Fund bought 5.9 million shares, exchange data showed. It did not mention the names of the other buyers.

BAT said it would still hold a more than 25% stake in ITC , which Jefferies analysts say will help it hold on to board seats and exercise influence over the company's strategic direction.

BAT said on Monday that it was evaluating a possible disposal of a "small part" of its shareholding in ITC, without disclosing financial terms.

The lack of details made investors nervous, leading to ITC slipping more than 2% in the previous two sessions, bringing its losses to 2.4% since Feb. 8, when BAT first said it would sell the shares.

Wednesday's rise flipped the stock to gains of nearly 4% since the stake sale plan was announced.

BAT shares have added over 5% this week as it also announced a $895 million share buyback.

"There was an overhang of BAT holding stake in ITC. Now that the liquidity worry of this overhang is over, the stock has gone up," Amit Purohit, vice president at Elara Capital, said.

"We believe BAT's stake sale will clear the uncertainty around stock performance and expect ITC's stock outperformance to resume after the stake sale," Morgan Stanley said.

($1 = 82.8721 Indian rupees)

(Reporting by Indranil Sarkar, Varun Vyas and Manvi Pant; Editing by Savio D'Souza and Mrigank Dhaniwala)