BAT affiliate faces pounds 192m fine threat

TOM STEVENSON

City Editor

An Indian associate of British American Tobacco faces the elimination of its entire net worth if the Delhi government enforces a 7.99bn rupee (pounds 192m) fine on the company for alleged tax evasion.

ITC, which is 32 per cent owned by BAT, is accused of failing to pay more than pounds 150m of tax. If the penalty is enforced the company may be forced to borrow the funds to pay it, possibly from BAT itself. Shares in the UK holding company shrugged off the threat yesterday, closing just 1p lower at 564p; analysts doubted whether ITC would be forced to pay the whole fine. The company, which denies wrongdoing, said it would appeal.

The tax evasion charge is the latest hitch in the relationship between ITC and BAT, which last year failed to have an outsider appointed to the Indian company's chair. Its views were overruled by a group of institutions backing the deputy chairman, Yogi Deveshwar.

One source close to the company said, however, that the appointment of Mr Deveshwar to the top job might have been a blessing: "Given his connections in Delhi, we will not be surprised if ITC manages to come out of the whole affair with little lost, if at all."

The ITC affair is the second time in as many days that BAT's Asian operations have caused controversy. Yesterday the company denied that it had gathered a group of senior executives to target China and other emerging markets. The company said that executives meeting in Hong Kong would be discussing BAT's new regional structure.

Attention has focused on BAT's interests in China and other developing markets because of the gap between the slowly declining tobacco markets of the West and the enormous growth potential in other markets that have only recently opened to foreign companies.

China is understood to have 450 million smokers, smoking 1,700 billion cigarettes a year of which foreign companies have a 4 per cent share. Sales in China are thought to have contributed between pounds 200m and pounds 300m to BAT's profits last year.

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