The first year annual licence fee for Taj Mansingh hotel in the national capital could be set in the range of Rs 30 crore to Rs 34 crore as the property goes up for auction, according to sources in the know.
This would be treated as the minimum guaranteed annual licence fee for the hotel entering into a fresh 33-year lease agreement. The licence fee will be increased every year based on the annual Wholesale Price Index (WPI), as suggested by SBI Caps, which is conducting the auction.
The minimum annual revenue share, or the floor price, is likely to be set at 17-18 per cent, sources said. This is the percentage of a company’s revenue that will have to be shared with the New Delhi Municipal Council (NDMC), which owns the 3.78 acres on which Taj Mahal Hotel is located on 1, Mansingh Road. The bidder who quotes the highest revenue share will emerge winner. The financial bids will be stepped up gradually till the auction ends.
The tender document for e-auctioning of licensing rights of the luxury hotel, currently run by the Tatas, has been approved by key government departments. However, another meeting of the NDMC some time next week will fix the auction date and clear the terms of bidding, it is learnt.
While the NDMC in a recent meeting decided that the monthly minimum guaranteed fee should be based on the monthly average of payments (around Rs 2.96 crore a month) it received from Taj Mansingh from FY15 to FY17, SBI Caps engaged two consulting firms — Knight Frank and CBRE — to calculate the annual licence fee in an independent manner. The two firms came close to each other in their assessment. While Knight Frank India is learnt to have cited around Rs 29 crore to Rs 32 crore as annual licence fee, CBRE South Asia gave a figure of Rs 30 crore to Rs 34 crore, sources said. SBI Caps may have decided to take an average of the upper end of the two recommendations.
According to the proposed auction process, the bidder must submit an initial price offer, which will be a percentage of the total revenue. Bidders have to deposit a security fee of Rs 25 crore as well as minimum guarantee fee. Besides, there’s a tender document fee of Rs 500,000 and an upfront fee of a little over Rs 50 crore.
The auction will determine the revenue share that the winner will pay, but it has to be higher than 17 per cent. Estimates suggest that the NDMC received more than Rs 40 crore as payment from Taj Mansingh in FY17.
The other rules include that there cannot be less than three bidders in the technical round. Also, the proposed time frame suggests that the auction would be held in November 2017, and in case an entity other than Tatas wins the bid, the handover would happen around May-June 2018.
The new operator would get time till the end of 2019 to refurbish the property and it could begin operations by January 2020. The bid document has included provisions to prevent cartelisation too, sources said. For that, the authorities have borrowed certain aspects of the Mineral (Auction) Rules, 2015, notified by the Ministry of Mines.