BackRestrictive bid terms put question mark over Taj Mansingh auction
Tough requirements for the auction of Taj Mansingh will bar all foreign hotel chains and financial investors as well as several local hotel operators, say hotel firms, consultants
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Tough eligibility requirements for the auction of New Delhi’s Taj Mansingh hotel will bar all foreign hotel chains and financial investors as well as several top local hotel operators, a scenario that will favour Indian Hotels Co. Ltd (IHCL), which runs the 300-room luxury property now, prospective bidders and consultants said.
Apart from IHCL, large hotel chains including ITC Ltd, EIH Ltd, which runs Oberoi hotels, and K Raheja Corp. Ltd have submitted expressions of interest for operating the property, two people aware of the development said.
Last year, the Supreme Court had allowed the New Delhi Municipal Council (NDMC) to auction the Taj Mahal hotel on Mansingh Road, rejecting IHCL’s claim over the property. NDMC had given the property to IHCL on a 33-year lease, which expired in 2011. The Tata group company got several temporary lease extensions subsequently.
Several hoteliers and potential investors Mint spoke to said they had raised issues over eligibility norms at a meeting in New Delhi on 27 December. NDMC, which had agreed to respond by 3 January, has not replied yet, they said.
“The bid terms appear extremely restrictive and not favourable to attract a large number of Indian and global players which is what should ideally be the purpose of any auction," said Mandeep Lamba, managing director (hotels and hospitality group) at property advisory firm JLL India.
No financial investor or foreign hotel operator is allowed to bid in the auction. Bidders should have annual revenue of over Rs400 crore and must operate five-star hotel brands of their own, with a minimum of 500 rooms across three properties.
These conditions leave only three or four hotel companies in India, namely Taj Group, ITC Ltd and EIH Ltd. However, NDMC has also put a clause that no two bidders could have cross-holdings of more than 5% stake. ITC holds a 14.98% stake in EIH, meaning that only one of the two can participate in the auction.
“Minimum three bidders are required to qualify for the first round of bidding. The process may go null and void and maintain status quo. And Taj will continue to run it," a senior executive at a large hotel company said on condition of anonymity.
An IHCL spokesperson confirmed the company is bidding for the property but declined to comment on the issues raised. ITC did not respond to email queries sent on Thursday, while a spokesperson for Oberoi Group said in an email response that “concerns have been shared with NDMC at a recent meeting".
“The whole concept of bidding is that you open the largest universe of investors for value maximization. The current process and selection criterion is restrictive and poorly conceived," said Saurabh Gupta, managing partner (investment advisory and asset management) at Hotelivate, a consulting firm.
While the first round of bidding was scheduled on 10 January, the final auction was to take place on 30 January. Issues over eligibility criteria have delayed the process. NDMC is yet to officially come up with new dates.
Tanveer Ahmed, deputy director (estates), NMDC, said that the technical bid (or the first round of bidding) is likely on 24 January. “Prospective bidders have raised some queries... If there is any amendment to be made, we will do it," he said.
Ahmed declined to comment on any specific issues raised by the potential bidders, but said SBI Capital Markets Ltd, the transaction adviser to the auction, has “taken cognisance of the issues and the queries would be replied to accordingly". Questions emailed to SBI CAP on Thursday were not answered until press time.
The bidding conditions restrict serious financial bidders, according to Ashish Jakhanwala, managing director and chief executive officer, SAMHI, a leading hotel investment firms. “It is disappointing because what NDMC has refused to acknowledge in the hotel business is that brands are different from owners," he said. Most of the high-quality capital comes from institutional owners who don’t own a brand, he added.
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