Battle for Taj Mansingh: Auction terms eased for Delhi's iconic hotel

Hotel chains can bid jointly if cross-holding is below 20%; asset, brand owners can team up for bidding on June 19

Hotel asset owners and brand owners can jointly as well as independently bid for the capital’s iconic luxury hotel Taj Mansingh provided the bidder meets eligibility conditions.

A fresh auction tender issued by the New Delhi Municipal Council (NDMC) on Wednesday also relaxed the earlier condition that stated two bidders cannot have a cross-holding of 5 per cent or above. The new cut-off has been set at 20 per cent and above, making both ITC and EIH (Oberoi Group, in which ITC holds 14.98 per cent) eligible to bid.

NDMC, which postponed the auction several times since January and then allowed the December tender document to lapse, has now set June 19 as the date of e-auction. Prospective bidders had expressed unhappiness over the bid conditions in the first tender, describing some of them as restrictive. The lease period, which was 33 years in the first tender, has been retained, though some prospective bidders claimed the tenure should have been longer.

According to the latest tender document, the interested parties can submit bids between May 18 and June 7. NDMC will conduct a site visit between April 25 and May 10. This will be followed by a pre-bid meeting on May 11. SBI Capital Markets will be the transaction advisor for the auction.

NDMC has retained most of the financial terms from the previous tender. The next operator of this property will have to assure a minimum revenue share of 17.25 per cent and a minimum guarantee fee of Rs 29.64 million per month, with a clause for escalation. There is also an upfront non-refundable fee of Rs 533 million. NDMC is seeking a performance security of Rs 355 million as well.

When the first tender document was floated, hotel companies like ITC, EIH, K Raheja Group, Saraf Hotel Enterprises and Indian Hotels, the current operator, had picked up tender documents. The list, industry watchers say, will expand with the relaxed norms. NDMC will annul the auction in case the total number of technically qualified bidders is fewer than three. 

Umesh Saraf, joint managing director at Saraf Hotel Enterprises, which owns several luxury hotels, said early this month that it did not qualify in the first tender in spite of owning 5,000 rooms. “It is a prized asset in the heart of Delhi. We will bid for it. You are not paying anything for the property. So there is no capital cost,” he said.

The Tata group-owned Indian Hotels had signed a lease agreement with the NDMC in 1976 and the 292-room hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When the NDMC decided to auction the property, Indian Hotels challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.

The Indian Hotels’ stock closed at Rs 145.60 on the BSE, down 2.7 per cent from the previous day.

The hotel is unlikely to bring any revenue to a new operator for the first two years, which may go into renovating the property. Besides the fees and payments to NDMC, the new operator will also need to invest Rs 3-4 billion on renovation. If this money is borrowed, it will involve an additional annual interest cost of Rs 300-400 million. So making money from this hotel may not be easy.