Full promoter subscription in EIH rights issue

The promoters and promoter group of EIH Ltd, which runs the Oberoi and Trident chain of hotels, will subscribe to the coming rights issue to the full extent, and to renunciations made by any other shareholder.

According to the draft letter of offer filed with the Securities and Exchange Board of India (Sebi), the corporate promoters of EIH—Oberoi Plaza Pvt Ltd, Bombay Plaza Pvt Ltd, Oberoi Leasing and Finance Private Ltd, Oberoi Properties Pvt Ltd, Aravali Polymers LLP, Oberoi Building and Investment Pvt Ltd, Oberoi Holdings Pvt Ltd and Oberoi Hotels Pvt Ltd—provided an undertaking on September 27, 2010, to the company that they’d apply for additional equity shares to the extent of the unsubscribed portion.

The promoters have also indicated that on account of this subscription, the promoter group may acquire shares over and above their respective entitlement.

The promoters’ holding as on December 31, 2010, was 32.31 per cent. Subscription according to rights entitlement, at five equity shares for every 11 shares held, would mean a payout of Rs 375 crore for the promoters.

However, the rights issue is unlikely to significantly alter what different stakeholders have. Among the major shareholders are ITC, with 14.98 per cent. The cigarette-to-hotels’ major’s stake is just a bit less than15 per cent, the threshold limit that triggers a mandatory open offer.

The company did not comment on whether it would subscribe to the rights issue. At Rs 65 a share, a discount of 30 per cent to the last closing price, if ITC subscribes to the full extent, it will cost around Rs 174 crore.

For Reliance Investments & Holding Pvt Ltd, subscription to the full extent will cost around Rs 172 crore. Reliance Industries Ltd (RIL), through Reliance Investments & Holding Pvt Ltd, checked into EIH in August last year in a deal with promoter P R S Oberoi and two other promoter entities. The move was seen as an aim to fend off any possible takeover threat from ITC. The holding of Reliance, which is not a promoter group entity, stood at 14.8 per cent as on December 31.

Company executives said shareholders could also apply for additional shares, but the decision on allotment would be made by the company’s board in consultation with the stock exchanges.