Second auction attempt: Bidders' queries on Taj Mansingh go unanswered

NDMC's ambitious plans to auction Delhi's iconic luxury hotel Taj Mansingh and its handling of pre-bid queries of prospective bidders do not appear to be well coordinated. The New Delhi Municipal Council, which owns the land on which the hotel is built, called a pre-bid meeting of prospective bidders last Monday. Such meetings are usually meant to answer all queries and concerns.

However, the written responses to the queries raised in the meeting appear a bit disappointing. A total of twenty-one queries were raised in the last week's meeting. Responses to nineteen of these queries has one standard reply: No change in tender document. This is the Council's second attempt to auction the property after a lukewarm response to the first attempt last month. While a minimum of three qualified bidders was required for conducting the auction process only one bid was received from the current operator Indian Hotels Company Ltd. Hotel companies said the conditions are not investor friendly and making money on the property could be tough in the initial years.

NDMC has brought the same tender again with no changes in conditions. Let us have a look at some of the queries/requests raised at the pre-bid meeting. The tender says the evaluation process will consider the entity offering highest revenue share (as a per cent) for deciding the winner. But the revenue assumption, in this case, is left to the bidder. There is a concern that player A may offer 25 per cent as revenue share while assuming annual revenue to be Rs 1.5 billion and player B may offer 20 per cent but assume revenue to be Rs 2.5 billion. In this case, even though the offer of B is actually higher in absolute terms B will be ranked after A and will have a greater chance of disqualification. There was a request to modify this. However, the response says no change in the tender document.

There was another query on whether the gross revenue calculation will exclude the GST, interest income from investments made, commission paid to travel agents, etc. Here too the response is “no change in tender document”.

The tender does not specify the minimum number of rooms that next operator will need operate as a part of license. One of the queries relates to this. There is a suggestion that it should be not less than 250 guest rooms. The property has 292 rooms as of now but renovation could reduce the number of rooms like it happened in case of the nearby Oberoi Hotel. The response again says there is no change in tender document.

Investors also raised a concern about the fate of the 800 direct/indirect staffs associated with the hotel. There is no indication on the future employment of these staffs in the tender document and a suggestion is made to address it in tender document. Response to this is no change in tender document.

An expert specialising in hotel industry related transactions said last month that the auction process of Taj Mansingh was being conducted with a ‘landlord’ attitude. “There is no rent-free period for the winner. The winning firm will have to start paying money to NDMC from day one even though the actual hotel operation and income may take multiple months to begin”, he said. The hotel needs a complete renovation and it may take more than a year during which the regular guests of Taj Mansingh would have to be shifted to other hotels, said an industry executive. “You cannot re-open it and expect a tariff of Rs 10,000 per room from day one.’’

Indian Hotels had signed a lease agreement with the NDMC in 1976 and the 292-room hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When NDMC decided to auction the property, Indian Hotels challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.