Shares of hospitality major EIH Ltd surged as much as 15 per cent on Saturday, a day after Mukesh Ambani-controlled Reliance Industries’ arm scooped up an additional 3.73 per cent in the company. The stock closed at its highest level since January 2011 — at Rs 98.60, up Rs 8.90, or 9.92 per cent — after a special 90 minute-trading session on Saturday.
Investors flocked to the EIH counter on expectations that RIL, India’s largest company, might further increase its holding in the Oberoi Group flagship to take it close to the new open offer trigger of 25 per cent. The EIH counter clocked a turnover of Rs 87 crore, several times higher than the average daily turnover of Rs 1.6 crore seen this year so far.
On Friday, RIL had acquired Max India promoter Analjit Singh’s entire 3.73 per cent holding from the open market for Rs 192 crore, to race ahead of ITC, which also has holds a significant 14.98 per cent in EIH.
EIH — which operates hotel chains under Oberoi, Trident and Maiden brand names — had long seen ITC as a potential raider as the latter had also considerable interest in the hospitality sector.
After ITC had raised its holding perilously close to the then takeover trigger of 15 per cent, RIL had entered as the white knight in August 2010. It had originally picked up 14.12 per cent from Prithvi Raj Singh Oberoi and his family. Ambani’s wife Nita and his confidante Manoj Modi were inducted to the hotel group’s board in 2010, strengthening its ties with RIL. RIL had raised this stake to 14.8 per cent through market purchases before the latest move.
RIL now holds 18.53 per cent in EIH. Both RIL and ITC had kept their holdings just under 15 per cent, the previous open offer trigger. However, after the capital market regulator Securities and Exchange Board of India raised the open offer trigger, RIL managed to fire the first salvo. New takeover rules, which came into effect in October, allows investors to raise stake up to 24.99 per cent without triggering open-offer obligations.
“It was expected that either Reliance or ITC would further raise its stake after the new takeover code was introduced,” said Ambareesh Baliga, chief operating officer at Way2Wealth. “It is not the end, Reliance still has a lot of headroom to increase holdings.”
Independent stock market analyst S P Tulsian said: “Reliance has taken the lead. It will be interesting to see how it pans out from here. The market is expecting that RIL would negotiate with ITC to buy its stake in EIH.”
ITC may find it difficult to buy a large stake in EIH, given that insurance companies are among other large shareholders in the company. After EIH and RIL, insurance behemoth LIC is the third-largest among EIH’s non-promoter shareholder, with a 6.24 per cent stake. Shares of RIL closed at Rs 813.2, down Rs 1.15, or 0.14 per cent, even as the Sensex closed flat at 17,636.99 points.
Besides EIH, the scrips of other hotels also gained on Saturday. Hotel Leela Venture jumped 8.2 per cent to Rs 37.6, while Indian Hotels added 2.7 per cent to Rs 69.1.
Analysts believe RIL’s move to raise its stake in EIH could trigger a re-rating for the hotels sector. “Almost all hotel stocks have been trading at a discount to their asset value. Now the market might start valuing these companies on an asset valuation basis,” said Baliga.
