Orient-Express rejection proves to be a blessing in disguise for Tata

Indian Hotels' offer of $12.63 a share made in 2012 still beats Belmond's last traded price of $11.32 on the NYSE

Rejecting the buy-out offers made by India’s largest hotel company twice has proved to be a rueful decision for Bermuda-based Belmond and a boon for Tata group-promoted Indian Hotels Company (IHCL).

Belmond’s rejection of the $1.2-billion unsolicited takeover bid by Indian Hotels Company two years ago, saying the offer was ‘too cheap’, has proved to be a costly affair for the former. The Tata group company’s offer of $12.63 a share for Orient-Express Hotels, later rebranded as Belmond, made in 2012, still beats the company’s Friday traded price of $11.32 a share on the New York Stock Exchange (NYSE).

In each of the six succeeding years from the time Indian Hotels Company and its subsidiary Samsara Properties invested in Belmond (formerly Orient-Express Hotels) back in 2007, the struggling NYSE-listed company has only posted losses. Last year, Indian Hotels officially withdrew its offer more than a year after it was rejected for the second time.

Mounting losses innately disallowed the company to reward its shareholders during the period with the last dividend paid more than six years ago. Belmond has been selling properties to reduce its debt burden, which stood at $621 million at the end of September quarter.

Bermuda-based Belmond has 45 hotels, trains and river cruises spread across Americas, Europe, Asia and Africa. The company has been facing challenges.

For instance, the average age of its guests is 55 years and only three per cent of its guests have stayed at more than one property. Many of its historically-significant properties such as the one in Venice are in need of investments for upgrades.

Although both companies are very different in their business operations, their market capitalisation is at par with each other. While Indian Hotels had a market capitalisation of Rs 8,975 crore as of last Friday, Belmond had a market capitalisation of Rs 8,494 crore. While IHCL operates through four brands stretching from luxury to budget hotels, Belmond operates only its own brand, which is luxury.

IHCL, which was planning to take over Belmond through a mix of debt and equity, is battling its own debt pile made worse by a weak global operation from where 40 per cent of its revenues come.

At the moment, the company is sitting on a debt of Rs 3,300 crore.

In addition, fighting competition at home against global giants such as Marriott, Hyatt, Accor, Starwoods and Intercontinental has led to pressure on revenues due to discounts offered. It was forced to sell a prized property, the Blue Sydney in Australia, earlier this year to use the proceeds to cut debt.

Although with a significantly reduced stake, IHCL still holds 6.9 per cent stake in Belmond's class shares.

IHCL did not participate in the numerous rights issue Belmond came out with after the target company decided for a new class of non-traded shares that control majority of the voting rights, leaving the listed shares with very little control of the company.

A mail sent to Indian Hotels Company seeking clarity on its future plans with regard to its stake in Belmond remained unanswered. IHCL made total investments of Rs 1,200 crore in picking up shares of Orient-Express Hotels.

However, the owner of brands such as Taj, Vivanta By Taj, Gateway and Ginger, took an impairment hit of more than Rs 700 crore on its investments in Belmond.