Kolkata: EIH Ltd, which runs hotels under the Oberoi and Trident brands, is to raise Rs1,161 crore through a rights issue of 178.6 million shares, the company decided at a board meeting on Friday.
The rights shares are to be issued at Rs65 each—or a 30% discount to Friday’s closing price of EIH shares—at a ratio of five shares for every 11 currently held. The record date for determining eligible shareholders who are to receive shares under the rights issue is 22 February.
EIH’s shares closed at Rs93.50 each on the Bombay Stock Exchange on Friday, gaining Rs2.40 or 2.63%, while the benchmark Sensex index rose 265.57 points or 1.52% to 17,728.61 points.
The Oberoi family, which founded the firm, owns 32.31% in EIH. They are to subscribe to the rights issue, according to a key official, who did not wish to be named, and this is to cost them around Rs375 crore.
In August, the Oberoi family had sold a 14.12% stake in the firm to Reliance Industries Ltd (RIL) at Rs184 a share for a total Rs1,021 crore.
The EIH executive had earlier said the founders would not only subscribe to their quota of shares under the rights issue but also subscribe to “every share that is renounced”.
The stake sale to RIL was widely seen as aimed at thwarting the advances of consumer goods and cigarette maker ITC Ltd, which had built up a 14.98% stake in EIH. ITC, though, has always maintained that it had no plan to launch a hostile takeover bid for EIH.
It isn’t immediately known whether ITC would subscribe to the rights issue, but if it buys all the shares it is entitled to as part of the offer, it would have to pay around Rs174 crore. ITC’s spokesperson refused to comment. An RIL spokesperson also refused to comment on whether it would subscribe to shares under the rights issue.
RIL, which has since raised its stake through on-market purchases, currently owns 14.8% of EIH. To maintain its stake in the firm, it will have to buy shares worth Rs172 crore in the rights issue.
EIH needs cash to expand its business, the company’s official had said, adding that a stake sale followed by a rights issue was seen by the management as the best way to address the firm’s immediate cash needs.
“EIH promoters were strapped for cash,” said an independent stock market analyst, who, too, did not wish to be identified. “The stake sale put cash in their hands, which they can plough into the company’s operations. It is likely that the rights issue would also result in the Oberoi family raising its stake a bit.”