In a major setback, the Tata Group’s Indian Hotels Company (IHC) will not get a lease extension for the Taj Mahal Hotel in the heart of this city, better known as the Taj Mansingh after the road it is on.
New Delhi Municipal Council (NDMC), the civic body for the 43 sq km area in the city centre, which owns the land on which the 294-room luxury hotel is situated, decided on Thursday to proceed with inviting bids to run the place, opening the doors to competitors of IHC.
The hotel was set up in 1978, with a 33-year lease to the operator. For the past five-odd years, the civic body has wanted to call for an auction and IHC has been demanding that it get the new lease, arguing it has spent so much money to build the place’s reputation. The matter has been in court for a long while.
NDMC, which works under the administrative control of the Union home ministry, has also decided to cancel the licence of Le Méridien, another landmark hotel in the heart of Delhi, over non-payment of Rs 523 crore in fees. Karan Singh Tanwar, vice-chairman, NDMC, said eviction proceedings will be initiated against the hotel. Last year, NDMC had sealed the Connaught Hotel in the Capital, as it owed Rs 140 crore in licence fees. Hotel Asian International, too, was sealed, as it owed Rs 56 crore to the body.
“Repeated extensions have been given to IHC since 2011. The Supreme Court (SC) had asked NDMC to review and reconsider the decision to auction the property. We came to a conclusion today (March 2) that the only way out is an open, competitive bidding,” said Karan Singh Tanwar, vice-chairman, NDMC.
IHC had approached the apex court to challenge an earlier decision of the high court here, which had allowed NDMC to end the existing lease and proceed with the auction. In January, the SC had directed NDMC to review its decision. IHC had argued the Taj gave the ‘best revenue’ to NDMC and this would be lost with an auction.
For IHC, the asset is estimated to generate annual revenue of about Rs 150 crore. The Tata company was seeking a renewal of licence on the ground, as mentioned earlier, of the equity investment it had made in the property. The initial cost incurred by it before the hotel became operational in 1978 was Rs 4.61 crore. Additional investments went to modernise the property.
Tanwar said NDMC wanted ‘healthy competition’ and IHC would not enjoy any right of first refusal. “The highest bidder will get this property. If Taj emerges the highest bidder, it will retain the hotel,” he added.
Rival hotel chains and management companies said they’d like to study the option of bidding for this property but await clarity on the terms and conditions. NMDC had earlier asked SBI Cap to be transaction advisor for the auction.
“Making money on this property will be a challenge. Other than the payments one has to make to NDMC, the hotel requires massive renovation; it is almost 40 years old. Renovation alone would cost Rs 250-300 crore. The margins one can make on an annual revenue of Rs 150 crore do not justify such an investment. But, don’t be surprised if someone wants this property for the trophy value it holds,” said a senior executive from a hotel management company.
Rival EIH is spending Rs 325 crore to renovate the 283-room Oberoi Hotel in the Capital, about four kilometer (km) from this Taj (there is another luxury hotel with this latter name another few km away).