Financial Daily from THE HINDU group of publications
Friday, Sep 13, 2002
Mergers & Acquisitions
Indian Hotels acquires Regent Hotel Makes North Mumbai entry with Rs 452-cr deal
MUMBAI, Sept. 12
INDIAN Hotels Company Ltd (IHCL) along with ICICI Trustee Services Ltd (I-Ventures) has acquired Lokhandwala Hotels Pvt Ltd's (LHL) Regent Hotel for a total consideration of Rs 452 crore.
This marks IHCL's much-awaited entry into the fast-growing North Mumbai market.
Lokhandwala Hotels Pvt Ltd (LHL), which will be renamedshortly, will be the holding company in which IHCL will hold 19.9 per cent and I-Ventures 80.1 per cent. The hotel has been renamed as `Taj Lands End' and Taj took over operations on Tuesday.
As per the deal, IHCL and I-Ventures acquire shares and property for Rs 452 crore, which include transaction costs. The net present value of the acquisition is Rs 415 crore, according to Mr Zubin Dubash, Executive Director, IHCL.
In the equity segment, IHCL's contribution is Rs 24 crore and I-Ventures Rs 95 crore. The debt component is Rs 331 crore, which is a loan given to Lokhandwala by the ICICI Consortium. Of this, Rs 81 crore of debt is interest-free for 27 months and Rs 47 crore free of interest cost for 31 months. Another Rs 3 crore comes by way of IHCL's working capital loan.
The loan is in the form of 15-year debentures with principal repayment commencing after five years. "The debt is back-ended with 80 per cent of the principal repayment commencing after the seventh year," Mr Dubash said.
There are four levels of debt with varying interest rates. These rates are re-settable in the fifth and tenth year.
The terms of the agreement allow IHCL partial acquisition up to 49 per cent at any time. Besides, IHCL has the option to acquire the entire stake within a period of four years. After four years, I-Ventures can offer its stake for sale and the obligation to acquire falls on IHCL.
IHCL will operate the hotel under a licence agreement. The licence fee will increase after the eighth year.
This move would enable IHCL to dispose of the land in North Mumbai, acquired some years ago, Mr R.K. Krishna Kumar, Managing Director, IHCL, said.
According to Mr Dubash, the entry into the North Mumbai market was significant for IHCL, primarily because of the growth rate. The number of rooms in North Mumbai is expected to increase to 3,575 from 2,150 over the next three years indicating an 18 per cent CAGR.
"This is the only market to grow this year among metro cities. The high growth trend is expected to continue," Mr Dubash said, adding that this new property would cater to three catchment zones - Bandra Kurla Complex, Andheri Kurla area and Worli, once the Bandra-Worli sealink comes up.
The hotel built on a 9.25-acre plot is currently operating 300 rooms with all its food and beverage outlets and banquet halls functioning. The plan is to convert it to a mixed used luxury complex with service apartments, retail and office space. About Rs 30-crore investment would be required for the completion, Mr Dubash said.
Currently, the cumulative losses of the hotel stand at Rs 50 crore, mainly interest and depreciation costs. The losses should be cleared in the next 5-6 years. There are not much operating losses, Mr Kumar said.
Occupancy of the newly acquired hotel is already at 50 per cent and with the tourist season commencing, 75 per cent occupancy is expected.
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