PE-backed Lemon Tree Hotels’ IPO crosses one-fourth mark on first day
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The initial public offering of Lemon Tree Hotels Ltd, India’s largest hotel chain in the mid-priced segment, crossed one-fourth subscription on the first day of Monday led by institutional investors.

The offering of 128.83 million shares, excluding the anchor allotment, received bids for 32.60 million shares on Monday, stock-exchange data showed. The IPO will close on Wednesday.

The qualified institutional buyers' book was subscribed nearly 82%. The quota reserved for non-institutional investors, comprising high-net-worth individuals and corporate bodies, received only 3.5% bids. The portion set aside for retail investors, whose bid value cannot exceed Rs 2 lakh per application, was covered 19%.

Ahead of the IPO, Lemon Tree raised Rs 311.60 crore ($48 million) from a bunch of anchor investors including Scottish investment firm Aberdeen and a New York pension fund.

Lemon Tree allotted a little over 55.64 million shares to 18 institutional investors at the upper end of the Rs 54-56 per share price band, it informed stock exchanges late Friday.

Other foreign investors participating in the anchor allotment include Deutsche Bank Singapore subsidiary DB International (Asia), London-based investment management firm NS Partners Trust, Washington-based Vantagepoint Investment Advisers and alternative investment fund Indus India Fund.

DB International acquired shares worth Rs 39.30 crore while New York State Common Retirement Fund bought shares worth Rs 10 crore. An emerging market-focussed hedge fund under Doric Capital and Gem Equity were among a total of 16 foreign institutions.

Anchor investors are institutional investors who accept a one-month lock-in period for a sizeable allocation of shares and support a public offering. Their participation highlights investors’ confidence in an IPO and sets a benchmark for the investor community at large.

Indian asset managers participating in the anchor allotment are SBI Mutual Fund and HDFC Asset Management Co.

The New Delhi-based hotel chain, which counts private equity giant Warburg Pincus as its backer, is seeking a valuation of as much as Rs 4,404 crore ($675 million) through the public offering that begins on Monday.

It will join a clutch of listed peers such as Indian Hotels Co. Ltd, EIH Ltd, Mahindra Holidays, Hotel Leela Ventures and Royal Orchid Hotels on the stock exchanges.

The Rs 1,038 crore ($160 million) public issue comprises a sale of about 185.5 million shares by the company’s promoters and Warburg Pincus. The issue will result in a 23.58% stake dilution on a post-issue basis. The promoter holding will drop to 19.49% from 31.07%.

VCCircle reported last week that Warburg Pincus was set to walk away with lower-than-benchmark returns from its partial exit through the IPO.

Warburg Pincus is selling 94.50 million shares out of the 192.908 million shares it owns. Its stake will drop to 12.01% from 24.53%, regulatory filings show.

Lemon Tree had filed its draft prospectus for the IPO on 21 September 2017. It received regulatory nod three months later.

Kotak Mahindra Capital Co, CLSA India, JP Morgan and Yes Securities are the merchant bankers managing the IPO.

Lemon Tree Hotels

The hotel chain also counts Dutch pension fund APG as an investor. APG is not selling any stake.

The company directly owns some hotels and operates some others through long-term leases for hotels owned by third parties. It also enters into operating and management agreements for some properties.

The chain operates under three categories in the mid-priced hotel sector—the upper-midscale category called ‘Lemon Tree Premier’, the midscale segment ‘Lemon Tree Hotels’ and economy hotels under ‘Red Fox’.

As on July 2017, it had 4,289 rooms in 40 hotels (including managed hotels) across 24 cities in the country. Its first hotel, in 2004, had 49 rooms.

The company has a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 13 managed hotels as on July 2017.

The company’s chairman and managing director is Patu Keswani, who has nearly three decades of experience in the hotel and hospitality sector. Its revenue from operations was Rs 411.93 crore for 2016-17, growing at a compound annual rate of 17.7% since 2013-14.

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