Indian Hotels Company Ltd, the country’s largest hospitality firm which runs a chain under the Taj Hotels brand, is raising its equity stake in an associate firm Piem Hotels and making it a subsidiary with an investment of up to Rs 51 crore ($11.3 million).
The hotel company, owned by the diversified Tata Group, has not clarified how much extra stake it is buying and whether it is done through secondary sale by its joint venture partner or through fresh issue of shares. Piem Hotels is a joint venture between Indian Hotels and the Nagpal family.
It is in the business of owning and operating hotels and owns the hotels under The Gateway Hotel brand in Nashik & Agra, besides the hotels under the ‘Vivanta by Taj’ brand in Pune, Lucknow, Mumbai and Bangalore.
As of March 31, 2010, Indian Hotels owned 46.2 per cent in Piem. The incremental stake acquisition will allow Indian Hotels to consolidate earnings. Assuming that the Tatas are picking just 4-5 per cent additional stake to become majority stakeholders in the firm, the deal can value Piem Hotels at as much as Rs 1,275 crore ($283 million), according to VCCircle estimates.
Indian Hotels scrip declined 0.7 per cent to close at Rs 78.4, valuing the company at Rs 5,954 crore ($1.3 billion).
Two months ago, the company had raised Rs 220 crore or $48 million from Singapore-based Omega TC Holdings Pte by selling an undisclosed minority stake in its wholly owned subsidiary Roots Corporation through a mix of equity and convertible securities. Omega also has the option to invest a further Rs 100 crore into Roots Corporation by March, 2014, subject to meeting certain conditions.
Roots operates the Ginger brand of budget hotel chain as a part of the flagship hospitality company of the Tata Group.
Indian Hotels also owns a majority stake in Bjets Singapore Pte (among other subsidiaries), but it has disclosed in its last annual report that the investment is treated as an associate in terms of the shareholders’ agreement, which caps the ultimate holding of the company to 44.44 per cent.
Meanwhile, the hospitality sector has been lately buzzing with investment activities. Recently, the country’s fifth largest hospitality firm Hotel Leela Ventures said that it was looking to divest as much as 14.95 per cent stake through a fresh issue of shares to unnamed investor(s), besides selling non-core assets including a major portion of a commercial office space next to its hotel in Chennai. The stake sale is expected to bring in around Rs 270 crore ($60 million) as cash.
Earlier, Reliance Industries made a strategic investment in luxury hotels group EIH. This was after Analjit Singh of Max India was said to be in negotiations with the promoters for a strategic partnership and had even picked a minority stake in the company. Incidentally, ITC also owns a minority stake in EIH which has just raised fresh funds through a rights issue.