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NEW DELHI : ITC Ltd, Indian Hotels Co. Ltd (IHCL) and DS Group have shown interest in bidding to develop and manage state-run India Tourism Development Corp.’s (ITDC) 550-room The Ashok hotel in the heart of the capital city, two people familiar with the development said.

The hospitality consultants, one of whom is an adviser to one of these companies, said the hotel operators are keen to run the iconic property in New Delhi, even though two of them, ITC Ltd and IHCL, already have a strong presence in the city.

The five-star property in the diplomatic enclave of Chanakyapuri was built in 1956 under the directions of Jawaharlal Nehru, the first prime minister of India, over 25 acres of parkland. The first such hotel built in Independent India boasts of one of Delhi’s largest pillar-less convention halls. The hotel went on to host several world leaders, including Fidel Castro, Yasser Arafat and Margaret Thatcher, but has now fallen into disrepair, losing much of its former sheen.

“The Ashok is like a monument for the city and the country in some ways," said K.B. Kachru, chairman emeritus and principal adviser, South Asia, to the Radisson Hotel Group and also vice-president of the Hotel Association of India. Kachru, who was a former head of the hotels’ division for ITDC, said the property offers a great opportunity for hotel operators, and it is natural that they will be interested. But the hotel will need a revamp, he added.

The 66-year-old hotel, Kachru added, was the first step India took towards hospitality and had the opportunity to host 109 presidents and heads of state.

Following a detailed proposal submitted by transaction adviser Feedback Infra to the Department of Investment and Public Asset Management (DIPAM) in July 2020 on the monetization of the hotel, its operator, ITDC, on Wednesday told the stock exchanges that it now had clearance to go ahead with the plan, sending its stock surging 10%.

The monetization proposal envisages operating, maintaining and developing three land parcels within the property. The Ashok will be leased for 60 years, and the other two land parcels within the complex, barring Samrat Hotel, will be leased for 99 years.

Queries sent to ITC and IHCL remained unanswered till press time. In a text response, a spokesperson for DS Group said: “We’ve been in hospitality for almost two decades, and we are always on the lookout for viable hospitality investment opportunities. If the proposition is value-led after evaluation, then The Ashok could be of interest to us. Our foray into hospitality since the early 2000s was to create growth drivers and consumer experience."

DS Group, the owner of Rajnigandha and Catch brands, owns a clutch of hotels, including Manu Maharani, Nainital; Namah (Jim Corbett); Radisson Blu (Guwahati) and Crowne Plaza (Jaipur).

Hospitality firms, including DS Group, ITC and Tata group’s IHCL, have done the groundwork to bid for the hotel, the people cited above said, requesting anonymity. To refurbish The Ashok, the consultant suggested that the successful bidder would have to spend 450 crore. In addition, the new operator of the hotel will be required to pay a minimum of 150 crore as an upfront premium, and the annual rentals for the lease will be decided separately. This rental amount will go up by 5% annually. The property will also likely have a profit-sharing model.

“This is a great opportunity as it will account for not just hotel space but potential office and retail spaces, including luxury shops and restaurants. So far, only a third of the land has been developed. While the new bidders won’t be able to change the façade, the rooms can change as owners will be allowed to break walls internally to create more or fewer rooms," one of the consultants said.

A roadshow will be held at the hotel on 22 August, where external consultants have been invited to participate. In the roadshow, Feedback Infra will provide details about the bidding process.

There are also two other parcels of about eight acres which are currently ‘underutilized’, according to the bid documents. The first is meant for retail-cum-office space. The other is for serviced apartments.

“Since it’s a heritage piece, it can be a jewel or a trophy asset for any large company. At face value, it looks to be a good deal, and it may even invite the interest of some sovereign funds. A fringe value of about 600 crore for it so far doesn’t seem to be a lot for the number of rooms it has in the part of the city that it is in," said Rattan Keswani, a hospitality industry veteran.

He added that 1 crore a room for refurbishment doesn’t sound like a lot since hotel reconstructions can mean anywhere between 2-4 crore per room in a large hotel. “Whichever firm invests in this asset will need to plan the amortization period etc., or whether they will be able to recover the investment in a short period of time. It may need additional funds for the staff VRS (as in the Air India investment) and the legal challenges from the existing unions. What needs to also be seen is if the RFP goes into a tendering/auction process—this will take the costs much higher", he added.

This hotel could be one of the most expensive pieces of real estate in all of South Asia, said one consultant since the hotel is spread over 32 acres in the heart of Delhi. “It’s invaluable in that sense. But about a decade ago, there was talk of doing such a deal, but those talks fell through after many hotel companies submitted proposals to the government. But if the government is going ahead with it this time, there would be a long list of potential bidders who would be very keen to put in money," said Romesh Koul, CEO, Naaz Hotel Consultants.

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