 "SES raps Indian Hotels")
Proxy advisory firm Stakeholders Empowerment Services has asked shareholders of Indian Hotels Company (IHCL) to vote against three resolutions sponsored by its management, including one which seeks to provide loans to a subsidiary that owns a majority stake in the erstwhile Sea Rock hotel here.
India's largest hotel company is seeking shareholder approval to give loans of Rs 700 crore to Lands End Properties (LEPPL), in the form of inter-corporate deposits or loans, secured or unsecured. The company, part of Tata Group, is having a postal ballot on this and the other resolutions, to end on Wednesday.
Says SES: “IHCL did not provide proper disclosures with regard to the changes in shareholding structure with various entities (LEPPL, its subsidiaries, ELEL). Shareholders got more information about various transactions from news articles than from the company. SES does not find it a good governance practice.”
IHCL presently holds the entire equity share capital of LEPPL. Which in turn holds 85.72 per cent (through its wholly-owned subsidiary, Sky Deck Properties & Developers) in a sea-facing property at Bandra in this city on which Hotel Sea Rock stood. In 2009, IHCL bought 85 per cent stake in ELEL Hotels and Investments for Rs 680 crore from Delhi-based Claridges, to own the Sea Rock, one of this city's best known landmarks.
“IHCL has not made adequate disclosures from time to time with regard to various transactions done in relation to the Sea Rock property. (We) find IHCL has kept shareholders in the dark by not disclosing relevant details,” addd the SES report.
The other two resolutions for which IHCL is seeking shareholder approval are providing a guarantee or letter of comfort to a subsidiary and create a security over the shares. SES wants shareholders to vote against these, too. The letter of comfort or corporate guarantee is for the obligations of Skydeck Properties and Developers, an indirect subsidiary of the company, to new lenders for a maximum amount of Rs 850 crore. SES, as mentioned before, alleges IHCL did not provide proper disclosures with regard to the changes in the shareholding structure with various entities. Shareholders got more information about various transactions through news articles.
“SES is of the opinion that either the new lender is seeking an additional cover as security for the loan it is offering, indicating higher risks of the underlying loan as the amount keeps on increasing year on year, with the same underlying assets, or this may be due to the pending litigation filed against the company with regard to additional floor space,” says SES.
IHCL denies all the allegations. “IHCL has consistently disclosed all aspects relating to the Sea Rock transaction, over a period of time, in its annual report, through intimation to the stock exchanges, quarterly interaction with investors and analysts, as also to the shareholders in the company’s annual general meetings,” it stated. And: "The explanatory note we gave to SES merely pieces together all the dots covering what has been communicated by us in the past. The fact of the matter is that SES issued their report originally without waiting for the management response to their query."
And, Institutional Investor Advisory Services, also a proxy advisory firm, has supported each of the three IHCL resolutions.
SES SAYS THESE DISCLOSURES WEREN’T MADE PUBLIC
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IHCL subscribed to shares in ELEL worth Rs 99 crore
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Negotiated price for the Sea Rock site was agreed at Rs 800 cr, based upon the embedded FSI (floor space index) of 2.5
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Post receiving an FSI of a min 5, IHCL's shareholding would come down to 67%, with Claridges, holding going up to 33%
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IHCL transferred 18% shares in ELEL to an escrow account whilst awaiting a closure on the final FSI on the site
