Mumbai: Indian Hotels Co. Ltd (IHCL) on Monday announced a Rs1,500 crore rights issue to reduce debt and renovate its hotels, but a statement by the chairman, N. Chandrasekaran, defending the Tata group company’s past acquisitions prompted ousted group chairman Cyrus Mistry to repeat his charge that those acquisitions were responsible for IHCL’s “near-death experience".
Speaking at IHCL’s 116th Annual General Meeting (AGM), Chandrasekaran, also the Tata group chairman, said the firm plans to spend Rs300 crore in 2017-18 mostly for refurbishing and renovating its properties. “For the next four-five years, our capex would be roughly around Rs3,000 crore but it all depends on the performance. The board evaluates every year and prepares its plan accordingly," said Chandrasekaran.
Chandrasekaran said IHCL is awaiting some approvals to rebuild the Sea Rock hotel in Mumbai, which it had bought for Rs680 crore in 2009.
In 2016, Mistry had alleged that IHCL had bought the property “at a highly inflated price". In the process of unravelling this legacy, IHCL has had to write down nearly its entire net worth over the past three years, Mistry had said.
At Monday’s AGM, Chandrasekaran defended the acquisitions.
“Prior to the financial crisis, the company had an established international expansion strategy and many decisions were taken by the board to establish marque properties in key geographies. Post the financial crisis and the resulting adverse impact on the hospitality sector, the board took appropriate financial decisions and decided to exit some of these ventures while retaining iconic properties like the Pierre," he said.
He added that the board was deeply involved in all the deliberations regarding all acquisitions and sale of various holdings and assets over time and had approved each of these initiatives, he added.
Mistry, who had red-flagged these acquisitions last year after his expulsion as Tata Sons chairman, was quick to react.
“Indian Hotels Co. Ltd has faced a near-death experience and over the last four years, has had to take write-downs amounting to nearly its entire net worth.
IHCL ended up spending over $100 million on renovation, multiples higher than what was originally planned at the time of acquisition...It was common knowledge before acquisition by IHCL, in the years prior to 2008 when the US market was strong, that the Four Seasons continued to lose serious money in running the Pierre hotel," Mistry said in a statement.
The Sea Rock acquisition was housed in “an off-balance sheet structure and upon folding it into IHCL, a large impairment has had to be acknowledged," he said.
At present, IHCL’s consolidated net debt stands at around Rs3,400 crore. As part of its strategy to reduce debt, it has been looking to sell some assets.
In its BSE filing on Monday, IHCL said the rights issue is to meet “company’s long-term financing needs for capital expenditure, growth plans and debt repayment". A committee of directors has also been formed to decide on the terms and conditions of the issue.
“Over the next two years, we intend to open 10 hotel properties under the Taj brand and another 11 under Ginger brand resulting in a total of 1,883 room keys," Chandrasekaran said at the AGM, adding that much of the expansion plan will focus on the Indian subcontinent.
Currently, IHCL owns and manages around 137 hotels with over 16,000 rooms across the world. The company would mainly follow asset-light model for its future growth.
“The company’s ability to deliver improved returns on capital would be driven through product renovation, rigorous asset management, revenue maximization, cost control and reduced leverage," he said.
In early 2017, the company has initiated a brand architecture exercise all hotels would be brought under one ‘Taj brand’.