Mumbai’s last palace, fought over by a feuding family and partly bought by pledging shares, is being used as collateral to free these.
These shares were pledged with financial institutions, Edelweiss and Industrial Finance Corporation of India (IFCI), for Rs 150 crore last year, when Orbit decided to purchase 50 per cent of the palace, now called Kilachand House. To finance the acquisition, the promoters had pledged 77.22 per cent of their holdings in Orbit as collateral to Edelweiss and IFCI. The promoters have 46.9 per cent in Orbit. They had paid Rs 220 crore for their 50 per cent share.
The 121-year-old palace is a landmark, known for its regal courtyard, 25 bedrooms, tony balconies, ornate beams and grandiose staircases. In the next couple of weeks, the promoters are planning to swap these pledged shares with the Kilachand asset.
Sources in the know told Business Standard the developer had spoken to both the institutions and they had, on the face of it, agreed to this transfer of collateral. The company is expecting to put the transaction through by June. “Edelweiss had agreed first and IFCI is expected to follow,” said a source, on condition of anonymity.
Confirming the development, Ram Shriya Yadav, chief financial officer, Orbit, said: “We have invested Rs 220 crore in the Kilachand property and now it depends upon the bankers, on how much they value the property at. At present, we are not looking at constructing anything on that property; thus, it can lie as a guarantee.”
BACKGROUND
The Kilachand property is currently owned by one of the wealthiest families of Mumbai, but this prime address has been at the centre of a fierce legal battle between 40 members of a fractious family, all branches of the four sons of Kilachand Devchand, one of the original owners.
More From This Section
Orbit Corp bought half the palace from Chinubhai and Suresh Kilachand, two factions of Devchand’s four sons and has been trying to negotiate with the other members of the litigious fractions to buy out entirely for a valuation of Rs 500 crore. The original plan was to build uber-lux apartments for very wealthy individuals, but the litigation punctured all plans.
But on March 15 this year, the high court at Mumbai allowed the family members to divide the house amongst the various claimants by issuing a preliminary decree of partition. The Aggarwals of Orbit Corp have seized on this opportunity. They have been planning to free up at least a part of their pledged shares from the financial institutions (FIs), but now in one go, they will get to release the entire block.
The court order could not have come at a better time for Orbit. The company’s shares have slipped 66 per cent in one year, thereby eroding the value of the shares being held by the FIs. Consequently, the promoters had to increase the amount of pledged shares to 77.22 per cent from the earlier 67.67 per cent. That meant an additional two million promoter shares were pledged to the FIs. Orbit's share closed today at Rs 48.65 on the Bombay Stock Exchange. The shares were pledged at Rs 120 each.
Typically, bankers charge pledged shares collateral at three to five times the loan value. For Orbit, the margin of share collateral was thrice that of the loan value, and as its prices collapsed, the developer also faced an increase in interest rate by 100 basis points. Its interest cost for the loan is around 13 per cent.