Kolkata/Mumba: Expanding the partnership that began a year ago with a stake sale, EIH Ltd is to build hotels and luxury homes jointly with Reliance Industries Ltd (RIL).
Two projects, in Goa and Bangalore, are currently being planned for joint development, EIH chairman Prithvi Raj Singh Oberoi said in Kolkata on Tuesday. More projects, both within and outside India, could be pursued jointly, he added.
The promoters of EIH, which owns and runs hotels under the Oberoi brand, sold a 14.12% stake to RIL a year ago for Rs1,021 crore. RIL has raised its stake since then to 14.9% by buying shares from the market.
The stake sale was widely seen as a move to ward off a potential takeover bid from ITC Ltd, which accumulated a 14.98% stake in EIH over 10 years. ITC, though, has always maintained that it does not have any plans of wresting control of EIH.
RIL is “an important shareholder and a friendly shareholder”, Oberoi said, speaking at the company’s annual general meeting on Tuesday. RIL is “probably” going to appoint a director on the EIH board, but Oberoi said he didn’t know when.
The stake sale was followed by a Rs1,179 crore rights issue, the proceeds of which were used to repay debts. While ITC and RIL subscribed to the shares allotted to them, the rights issue enabled the Oberoi family to raise its holding from 32.31% to around 34.5%. The promoters bought the shares renounced by other shareholders.
The properties that are to be jointly developed will be managed by EIH and will carry the Oberoi brand, Oberoi added.
An RIL spokesman declined to comment.
EIH owns a 55-acre sea-facing plot in Goa and an 8-acre plot overlooking a lake in Bangalore. Besides hotels at both sites, EIH proposes to build bungalows in Goa and 60-65 apartments in Bangalore.
Across the world, luxury homes are built along with hotels to maximize revenues, said S.S. Mukerji, EIH vice-chairman. EIH proposes to sell these homes outright.
For years, Oberoi has been saying that EIH had too much real estate on its balance sheet, and that the strategy going forward was to focus on managing properties built by others. In RIL, EIH appears to have found a long-term partner for property development.
It has a similar partnership with the diversified Rajan Raheja group, which has interests in industrial batteries, construction, media and petrochemicals. EIH Associated Hotels Ltd, a joint venture between the Oberoi and Raheja families, own and run hotels under the Trident brand.
Prakash Diwan, head of institutional clients group at Asit.C. Mehta Investment Intermediates Ltd, said that EIH and RIL as partners can complement each other since EIH does not want to commit additional financial capital to grow the hotels business and RIL has excess cash on its balance sheet waiting to be deployed.
“It makes business sense. Building a hotel may not require the kind of pedigree that will be required in running it day-to-day, which EIH will bring,” Diwan said.
There could have been a tacit understanding between the two companies on building and running hotels together, when RIL first picked up a stake in EIH, according to Diwan.
EIH has partnerships across the world, Oberoi said. He cited as example two hotels in Hyderabad, which are currently under construction—they are to be managed by EIH, which has a 16% stake in them. Another hotel in Marrakech, Morocco, is currently being planned. EIH, which has a 20% stake in it, will manage the property, according to Oberoi. Construction of the hotel will begin soon
In view of the global financial uncertainties, EIH has decided to pare capital expenditure this year. No new projects are to be undertaken; only existing hotels will be be refurbished at a cost of Rs40 crore, according to Oberoi.
EIH fell 1.77% to Rs86.10 per on the Bombay Stock Exchange on Tuesday, while RIL lost 1.95% to Rs 765.40. The benchmark Sensex lost 0.78% to 16,857.91 points.