Flip-flop on SeaRock, Pierre

Inconsistencies between Mistry's email and statements in annual report and shareholder notices

The shareholders of Indian Hotels, which runs the Taj group of hotels, are a confused lot. On August 23, they attended the annual general meeting (AGM) at Birla Matushri Sabhagar in Mumbai’s Marine Lines, where they approved financial statements and directors’ report signed by the then chairman Cyrus Mistry. The report called the SeaRock Hotel in Bandra, a “marquee” property and described it as key to the company’s growth strategy.

Just two months later, in a letter to the board on October 25 following the return of Ratan Tata at the helm of Tata Sons, Mistry had different things to say about the asset. “IHCL, beyond flawed international strategy, had acquired the SeaRock property at a highly inflated price and housed in an off-balance sheet structure. In the process of unravelling this legacy, IHCL has had to write-down nearly its entire net worth over the past three years. This impairs its ability to pay dividends,” Mistry wrote in a letter to the board.

Further, neither in the notices issued by the board to shareholders seeking their approval for lending and other financial support to holding companies of SeaRock in December 2015, nor in the explanatory statements was it admitted that the SeaRock purchase was at an “inflated price” and that it was a “legacy” that required “unravelling.”

The annual report had also talked about The Pierre, a Taj Hotel, being ranked among the best hotels in New York. It described in detail the conditions of the lease.

But nowhere did it say that “The onerous terms of the lease for Pierre in New York are such that it would make it a challenge to exit,” which Mistry revealed this week.

These inconsistencies raise questions on whether Mistry and his board colleagues wilfully misled or withheld material information from the public shareholders of the company. One of the governing principles of Sebi Listing Obligations and Disclosure Requirements, 2015 was that “the listed entity shall refrain from misrepresentation and ensure that the information provided to recognised stock exchange(s) and investors is not misleading.” Corporate governance experts were not amused.

“It seems Mistry has a very short memory. What he wrote in the email is contradictory to what he told shareholders a few months back. This also exposes the role of the board, which either did not look into the deal in detail or failed to convey the true picture to the shareholders,” said J N Gupta, managing director of Stakeholders’ Empowerment Services. “There is a problem.

It is an issue,” said Amit Tandon, managing director, Institutional Investor Advisory Services. Tandon added Mistry would be liable since he signed the balance sheet, unless things have changed in the months since, which did not seem to be the case.

Mistry did not respond to an email seeking comments sent on Thursday. Indian Hotels in a statement to the exchanges following Mistry’s letter had said the financial statements represented the true and fair view of the state of affairs of the company and did not give any specific comments on the SeaRock or other issues raised in Mistry’s letter.

Gupta said it would be the right of the independent directors to raise questions and find the true position. KB Dadiseth, Deepak Parekh, Nadir Godrej and Ireena Vittal were independent directors on the board which included managing director Rakesh Sarna and Mistry’s brother Shapoor Mistry.

Life Insurance Corporation of India (8.76 per cent), Reliance Equity Opportunities fund (5.51 per cent), ICICI Prudential (2.49 per cent), Franklin Templeton (1.98 per cent) and HDFC Mid-Cap Fund (1.41 per cent) are among top public shareholders.

“The SeaRock asset is a marquee site and is key to your company’s ability to drive value through further enhancing its existing portfolio of exclusive assets in Mumbai,” Mistry said in the directors’ report, which was part of the annual report.

“Recognising the importance of reassuming overall control over the SeaRock asset, your company has pursued the strategic objective by, firstly, purchasing the balance 80.1 per cent in Lands End Properties Private Limited from the other shareholders and thereafter seeking to amalgamate Lands End Properties Private Limited with itself,” the report signed by Mistry on May 18 added.

This would permit the company “to evaluate and pursue the most value accretive option for this unique asset” in a time-bound manner. Consequently, the step down subsidiaries of Lands End Properties Private Limited viz.

Skydeck Properties and Developers Private Limited, Sheena Investments Private Limited, Luthria and Lalchandani Hotel and Properties Private Limited and ELEL Hotels and Investments Limited have also become subsidiaries of your Company, the annual report said.

On the lease terms of Pierre, the annual report said, The New York LLC has entered into lease agreements for the use of various facilities at the Hotel Pierre for the purpose of operating a hotel business. The lease term with 795 Corp. is till June 30, 2025.