Sebi likely to ask for tweaks to Brookfield's bid for Hotel Leelaventure

Regulator looking at issues flagged by minority shareholders

The Securities and Exchange Board of India (Sebi) is likely to ask Brookfield to alter the structure of its bid to acquire the assets of Hotel Leelaventure.

In April, the market regulator had asked Brookfield and Hotel Leela to hold the sale of the assets following objections raised by minority shareholders such as Life Insurance Corporation of India (LIC) and ITC.

Sources said the regulator was not on board with the current offer as it had observed certain anomalies with respect to a side agreement with the buyer (Brookfield). “Any transaction should ensure that the company has negotiated a fair price to sell its assets and it should not have negative impact on the minority shareholders. The directives with this regard will come in two weeks,” said a source. An email sent to Sebi remained unanswered.

The market regulator in a letter to Leela had said it was examining the complaints; it also said allegations pointed to a violation of Sebi’s Listing Obligations and Disclosure Requirements (Lodr) rules.

ITC, which has an 8.72 per cent stake, had moved to the National Company Law Tribunal (NCLT), accusing the company of oppression and mismanagement. The next hearing in the matter is scheduled for June 18. ITC sought cancelling the issue and allotment of 163.9 million equity shares in September 2017, which constitute 26 per cent of the issued capital of Hotel Leelaventure, to JM Financial Asset Reconstruction Company. JM Financial ARC had converted a part of its loan amounting to about Rs 275 crore.

Besides, ITC has also 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 conduct and manage the affairs of Hotel Leela.

The proposed transaction with Brookfield, according to ITC’s petiton, was skewed in favour of the promoters and JM Financial ARC, and opposed to other shareholders.

After the promoters and JM Financial ARC, ITC is the largest shareholder, but its shareholding has come down from 11.78 per cent in June 2017 to 8.72 per cent now. In March, Brookfield had agreed to acquire Leela’s four properties in Delhi, Chennai, Bengaluru and Udaipur. 

This comes as a breather for the hospitality firm as JM Financial had filed insolvency application in January, which owes over Rs 5,600 crore to the lenders. The ITC petition goes on to say 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 would go to the promoters.

ITC has sought inspection of the documents and agreements referred to in the postal ballot notice and the explanatory statement, but said it was allowed inspection of only some documents.

Also, ITC said the promoters and JM Financial had not been identified as “related parties” and were entitled to vote in favour of the resolutions.

Proxy advisory firm SES advised shareholders to vote against the sale of Leela’s assets to Brookfield as it has not provided a valuation report on how the consideration for the slump sale was arrived at. It said there was lack of clarity on the future of the company and cast doubts over parallel transactions between the buyer and promoters. According to SES, the promoters should not cast their vote on the resolution as a good governance practice. Under the Companies Act, a minimum shareholding of 10 per cent is needed to file a petition for oppression and mismanagement. 

There was a similar petition by Cyrus Mistry against Tata when he was sacked as a group chairman in 2016. However, the plea was later rejected by the tribunal.