8 June 2019: Stakeholders in debt-laden Hotel Leelaventure are apprehensive that a deal to sell company assets to Brookfield may go the way of Jet Airways after the market regulator stalled the transaction.
The Securities and Exchange Board of India, which acted on complaints by minority investors ITC and Life Insurance Corporation of India, has yet to take a decision on the matter.
“I don’t know what the objection of the shareholder (ITC) to this is, other than the fact that they are in the same business,” Keki Mistry, vice-chairman of Housing Development Finance Corporation, one of the lenders to Leelaventure, told ET. “In any merger, there will be some shareholders who will object and here the shareholder is actually a competitor. I am sure Sebi will look at that as well.”
Of Leelaventure’s total debt of Rs 7,500 crore, HDFC had advanced about Rs 826 crore.
The stakeholders are concerned that delays in completing the deal would dissuade investors and dilute brand equity much like Jet Airways. The debt-laden airline was grounded and has failed to find investors.
Tobacco-to-hotels conglomerate ITC, which holds a 7.92 per cent stake in Leelaventure, challenged the transaction in the National Company Law Tribunal (NCLT) in April, claiming mismanagement and oppression of minority shareholders.
After ITC approached Sebi, the market regulator asked both parties to wait till it examines the complaints. LIC, India’s largest life insurer, holds a 2.38 per cent stake in Leelaventure.
“The shareholders of Leela, both in numbers and value, have… approved the transaction. It is important that the deal gets cleared at the earliest,” Mistry said.
Almost 86 per cent of all shareholders in a postal ballot voted in favour of the deal and over 70 per cent of the institutional and non-institutional shareholders supported it.
Emails to Leelaventure and ITC went unanswered till the time of going to press. Brookfield declined to comment.
Leelaventure announced in March that Canadian alternative asset management company Brookfield had agreed to purchase its key hotel properties in New Delhi, Bengaluru, Udaipur and Chennai for Rs 3,950 crore in a slump sale. The promoters and their affiliates would also get consideration of Rs 300 crore for any asset-related intellectual property rights they hold and for business expansion services that they provide to the investor.
“The pause by Sebi on the country’s largest hotel acquisition transaction of Leela’s hotels does not augur well for the positive sentiment that has built up for hospitality transactions,” said Mandeep Lamba, president, South Asia, at HVS Anarock, a consultancy firm.
Hotel transaction volumes were expected to cross $800 million in 2019, the highest ever for the Indian hospitality sector, following the deal announcement, HVS Anarock had said.
“This defeats the very purpose of the NCLT disposition of nonperforming assets, where timebound completion of asset sales is the key component towards resolution,” he said.
ITC failed to get immediate relief from the NCLT in April after the tribunal cited a Companies Act provision that requires entities to own at least 10 per cent of the issued share capital to file such petitions.
All parties including JM Financial ARC, which holds a 26 per cent stake in the company after the conversion of debt into equity, were given time to reply and the next NCLT hearing on the matter is scheduled on June 18.
ITC had made an offer to lender JM Financial ARC, which holds most of Leela’s debt, for Leelaventure’s assets and if Brookfield walks away, the value of those properties would slide because the next best offer for the assets was Rs 3,000 crore, people familiar with the matter said.
“Selling Hotel Leelaventure’s properties in a fractional manner as against the entire company is unlikely to fetch value and can prove to be value destructive for shareholders as well as lenders,” a lender said.
All stakeholders that ET contacted are concerned over hurdles in the way of closing the deal.
“The transaction will help resolve the debt issue, protect shareholder value, protect jobs and most importantly, bring in foreign investment. When was the last time we have seen foreign direct investment in the Indian hospitality sectors ” asked an investor, who spoke on condition of anonymity.
The investor said most hospitality deals are brand and management contracts that take money out of India and in contrast, this transaction would bring in Rs 3,950 crore, which is just the initial investment.