ITC's two investments in the hotel sector take different directions

Tobacco-to-hotels major ITC’s mark-to-market gains from its investment in EIH, which owns the Oberoi chain of hotels, stood around Rs 400 crore in 2018-19.

The value of ITC’s investment in EIH was at Rs 1,763.37 crore as on March 31, 2019, compared to Rs 1,362.24 crore in the previous year, according to the latest annual report. In contrast, the value of ITC’s other investment in the hotels space, Hotel Leelaventure, eroded from Rs 85.42 crore to Rs 54.45 crore in the same period.

ITC’s two investments in the hotels sector have been moving in divergent directions. The investment in both the stocks, however, was about the same, around Rs 200 crore, though ITC did subscribe to EIH’s rights issue in 2011.

ITC started buying into EIH from 2000 when the stock was at Rs 35 and stopped short of breaching the 15 per cent threshold that would have triggered an open offer, according to the Securities and Exchange Board of India (Sebi) regulations then. 

For the EIH promoters, it was always a source of discomfort. In 2010, when Reliance Industries (RIL), through an investment arm, bought a 14.12 per cent stake in EIH, the industry believed it was to ward off a possible hostile takeover from ITC. 

ITC, on its part, had always maintained that it had no such intentions. 

RIL had bought the stake from EIH promoter, P R S Oberoi and two other promoter entities, Oberoi Hotels and Aravali Polymers. The deal valued EIH at Rs 7,200 crore.

Source: ITC annual report

As of March 2019, ITC’s holding in EIH had stood at 14.98 per cent and its subsidiary Russell Credit’s at 1.15 per cent, according to the shareholding pattern with the stock exchanges. The threshold limit for triggering an open offer was changed to 25 per cent in 2011.

ITC started shoring up shares of Hotel Leelaventure in 2008, much after it bought into EIH. But, when RIL checked into EIH, Leela had said it would partner with Mukesh Ambani if there was any threat from ITC.

ITC’s own footprint has, however, grown since it started investing in the hotels segment. In 2000, when ITC made its first investment in EIH, it had four owned hotels and in 2008, it increased to seven. 

Today, ITC has 105 hotels, owned and managed put together, of which 15 are owned hotels in the luxury segment.

With Leela, ITC is now fighting a pitched battle in the National Company Law Tribunal (NCLT) against its proposed transaction with Brookfield for four hotels and a property. It had filed a petition in the tribunal under Section 241 of the Companies Act, 2013, accusing Hotel Leelaventure of oppression and mismanagement.

ITC’s main argument is that the transaction, which comprises inter-linked agreements/arrangements, involving Brookfield, Hotel Leelaventure, the promoter group and J M Financial Asset Reconstruction Company, if it goes through, would leave the residual company with liabilities exceeding its assets. 

The promoters of Hotel Leelaventure and J M Financial ARC, which holds 26 per cent in the company, have in their argument in the NCLT alleged that ITC is trying to stall the deal to wrest control through the back door. 

ITC has an 8.72 per cent stake in the company. The matter is being heard in the NCLT, Mumbai.