MNCs on a stake selling spree in India to generate cash, reduce financial burden

Over the last month, Conagra Brands announced the sale of its controlling stake in India’s Agro Tech Foods (ATFL), long-time investor British American Tobacco (BAT) indicated it would sell a partial stake in ITC while Japan’s Sumitomo Wiring Systems sold 4.4% stake in Samvardhana Motherson International.

“Acceptability of Indian stock as a liquid currency has also grown manifold—while 5-7 years ago many MNCs explored delisting as a viable option, the vibrant Indian markets today provide a significant value unlocking opportunity for these MNCs, through listing their India businesses,” said Gaurav Sood, managing director and head of Equity Capital Markets, Avendus Capital.

To further break it down, Conagra sold its stake to Convergent Finance LLP and private equity firm Samara Capital, who will jointly acquire a 51.8% stake in Agro Tech Foods Ltd for $78 million or ₹650 crore. Meanwhile, ITC’s largest shareholder BAT planned to offload a part of its stake in the conglomerate as it aims to improve “balance sheet flexibility” to monetise some of its holding and “reallocate some capital,” BAT said in a release last month. Its shareholding in ITC decreased to 29.02% in 2023 from 29.19% in 2022.

Japan’s Sumitomo Wiring Systems’ (SWS) sale of stake in Samvardhana Motherson will fetch the company about ₹3,633 crore, according to media reports. Last year, the company sold 3.4% stake in Samvardhana, citing a global deleveraging strategy to fund partial debt prepayment of SWS group in the rising interest environment.

Some of the other transactions in recent times include Whirlpool’s 24% stake sale in its Indian arm and Fairfax’s group entity Fairbridge Capital (Mauritius) Ltd selling of about 8.5% stake in Thomas Cook India.

Avendus’ Sood added that India has emerged as an important global growth driver for MNCs and listed Indian subsidiaries provide a “valuable currency to parents for M&A and debt repayment at the global level.”

While Whirlpool said it is not looking to exit India, the deal generated about $468 million in gross sales proceeds, aimed at reducing Whirlpool Corp’s debt. Following the sale, Whirlpool Mauritius’ holding in its Indian arm decreased to 51% from 75%, as reported in a US exchange filing.

Similarly, Fairfax also sold a stake in Thomas Cook in a deal valued at ₹5.58 billion after the company’s recovery from pandemic-induced disruptions. Through this transaction, Fairfax, which invested about $60 million in the company during the pandemic, has now received about $67.2 million through the offer for sale underlining Thomas Cook’s successful recovery, as per a few media reports.

These transactions further underscore big corporations’ struggles with uncertain macroeconomic conditions and unprecedented high interest rates in the US that have pushed them to initiate or execute stake sales to alleviate some of their financial troubles.

Even venture capital and private equity firms globally have slowed their pace of investments which has affected startups and companies alike. With leaner budgets to sail through the downturn, companies across the spectrum have undertaken a slew of cost-cutting measures that include layoffs, realigning business models, shuttering offices and non-profit making divisions to prioritize the absolute essentials.