Kolkata/Mumbai: Cigarette and consumer goods maker ITC Ltd has bought all the shares allotted to it in the rights offer by EIH Ltd, the company that runs hotels under the Oberoi and Trident brands, undeterred by its promoters’ stake sale to Reliance Industries Ltd (RIL) last year to fend off a potential takeover bid.
EIH’s Rs1,178.86 crore rights issue closed on Tuesday.
The company raised cash through the share sale to expand operations in India and abroad.
“Though the data is currently being compiled, we understand that both Reliance and ITC have subscribed to the rights issue,” said a person dealing with the offer, speaking on condition that he would not be identified.
ITC, RIL and EIH declined to comment.
ITC had to pay at least Rs176 crore to buy the shares allotted to it under the issue. By doing so, ITC would be able to maintain its stake in EIH at 14.98%, which it built up over the past 11 years through market purchases, paying Rs215.7 crore.
“I am absolutely sure ITC would have subscribed to the rights issue,” said S.P. Tulsian, an independent stock market analyst. “The rights issue was priced attractively, and there is no reason for ITC to pare its holding in the company.”
Had it not bought any share at all under the rights issue, ITC’s stake would have fallen to 10.3%.
Reliance Industries Investments and Holdings Pvt. Ltd, an arm of RIL, last year picked up a 14.8% stake in the company, largely through a negotiated agreement with the Oberoi family. It, too, subscribed to the rights issue, paying at least Rs174 crore.
RIL’s investment arm bought 55.4 million shares, or a 14.12% stake, at Rs184 apiece from EIH chairman Prithvi Raj Singh Oberoi’s family for a total Rs1,021 crore in August last year. Within a few days, it raised its stake to 14.8% through market purchases.
The share sale to RIL put paid to ITC’s hopes of wresting control of EIH to combine it with its own hotel business. ITC, though, has always maintained that it wouldn’t launch a hostile bid for EIH.
EIH allotted shares under the rights issue at Rs66 a share. By subscribing to shares under the rights issue, RIL would be able to reduce its average cost of acquisition.
“Though ITC is unlikely to have applied for shares renounced by others because even a marginal stake hike would trigger an open offer, Reliance, which has a little more headroom, might have applied for more shares than those allotted to it,” said a Mumbai-based analyst, who did not want to be identified.
He was referring to the Indian securities market regulation under which any company acquiring 15% or more in another has to make an open offer to buy at least 20% more.
EIH’s promoters, who currently own 32.31% in the firm, have said in the rights issue prospectus that they would subscribe to all shares allotted to them and also buy those renounced by others.
To subscribe fully to only their quota of shares, they would have to pay around Rs380 crore.