SEBI asks Hotel Leelaventure to keep Brookfield deal on hold
Photo Credit: Reuters

The Securities and Exchange Board of India has asked Hotel Leelaventure Ltd to not act upon its deal with Canadian investment firm Brookfield Asset Management Inc. until further orders.

The debt-laden hotel chain had signed an agreement with Brookfield on March 18 to sell four luxury hotels, its hospitality business and the Leela brand for Rs 3,950 crore ($576 million then). It had also sought shareholder approval for the deal via a postal ballot. The voting period was to end on Wednesday.

However, Hotel Leelaventure said in a stock-exchange filing on Wednesday that it has received a letter from SEBI that the capital markets regulator is examining certain allegations made by ITC Ltd against the company, its promoters and JM Financial Asset Reconstruction Company Ltd.

SEBI has also asked Hotel Leelaventure not to proceed with the postal ballot until further notice, the hotel chain said.

In its complaint, ITC has also made allegations against the promoters of Hotel Leelaventure and JM Financial ARC, which holds a 26% stake in the hotel group.

The development comes just a day after ITC moved the National Company Law Tribunal against debt-ridden Hotel Leelaventure alleging oppression of its rights as a minority shareholder in relation to the Brookfield deal. On Wednesday, the NCLT issued notices to promoters of Hotel Leelaventure and JM Financial ARC and posted the matter for further hearing on June 18, according to The Press Trust of India news agency.

According to a Business Standard report, ITC has petitioned for cancelling the allotment of 163.9 million shares, or a 26% stake, in Hotel Leelaventure to JM Financial ARC in September 2017.

It also said that ITC had sought the removal of Leela promoters Vivek Nair and Dinesh Nair and directors Vinay Kapadia and Vijay Sharma from the board. Further, ITC wanted the appointment of an administrator to manage the affairs of Hotel Leelaventure. ITC has also alleged violation of provisions pertaining to related-party transactions.

The proposed transaction with Brookfield, according to ITC's petiton, is skewed in favour of the promoters and JM Financial ARC and hurts other shareholders, including itself.

The petition says the proposed transaction would have the effect of transferring a substantial part of Leela's assets in favour of Brookfield. Of this, Rs 2,950 crore would be paid to the lenders while Rs 1,960 crore was being paid to JM Financial and Rs 300 crore to the promoters, Business Standard said.

Apart from ITC's allegations, SEBI has also received representation on the issue from state-run Life Insurance Corporation of India, which is a minority shareholder in Hotel Leelaventure.

According to SEBI, the allegation concerns the interest of investors in the securities market.

As per the deal, Brookfield was to acquire four Leela hotels in Delhi, Bengaluru, Chennai and Udaipur as well as the Leela brand and a property in Agra. The deal also included all assets and liabilities related to the properties, management contracts for all hotels in operation as well as contracts for hotels under development.

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