ITC may not subscribe to EIH rights issue

ITC may not subscribe to EIH rights issue

Kolkata/Mumbai: Cigarette and consumer goods maker ITC Ltd is unlikely to subscribe to the rights issue of EIH Ltd, which runs the country’s second largest hotel chain.

On Monday, EIH said in a stock market filing that its board would meet on Thursday to consider a rights issue, three weeks after the Oberoi family—the firm’s founders—sold a 14.12% stake to Reliance Industries Ltd (RIL) in a move widely seen as aimed at warding off a potential takeover bid by ITC, which currently owns a 14.98% stake in EIH.

“It looks very doubtful," said a key ITC official, when asked if his company would invest in EIH’s rights issue. He spoke on condition of anonymity. A spokesperson for ITC refused to comment.

ITC, which always wanted to control EIH, could be withdrawing because it doesn’t have any hope of cornering a controlling stake in the firm, and it may not want to invest further in the company, according to analysts.

“ITC’s investment in EIH has appreciated manifold since it began investing in the company’s shares 10 years ago," said the ITC official.

The 23 September board meeting in Bangalore is the first since the Oberoi family sold the stake to RIL, and EIH chairman P.R.S. Oberoi is expected to officially explain to the board his family’s decision to sell the holding and indicate future plans, according to EIH vice-chairman S.S. Mukherji.

He refused to offer any further comments. Oberoi wasn’t immediately available for comments.

RIL bought the shares from the Oberoi family on 30 August for 184 each, and has since ramped up its stake in EIH to 14.8% by buying shares from the market.

Speculation is rife that the Oberoi family could renounce a part of the shares allotted to it under the rights issue to RIL, which will boost the latter’s stake. If that happens, RIL would have to make a mandatory open offer for at least 20% of EIH’s shares in keeping with Indian takeover laws.

RIL refused to comment.

The speculation stems from the fact that EIH Associated Hotels Ltd, another hotel company managed by the Oberois, is an equal-stake joint venture between them and the Raheja family, which has interests in real estate, media and industrial batteries.

There is normally no legal bar on promoters renouncing their shares under a rights issue.

The Oberoi family currently owns a 32.31% stake in EIH.

“EIH, too, could eventually become a similar equal-stake joint venture between the Oberoi family and RIL," said the ITC official cited earlier.

EIH shares closed on the Bombay Stock Exchange at 136.70 apiece, 1% lower from its previous close, while the bourse’s benchmark Sensex index gained 1.6% to end at 19,906.10 points.

The announcement on Monday was made after the markets closed.