Hotel Corporation Sews Up Lease Strategy

The Hotel Corporation of India (HCI), a subsidiary of Air India, has finalised the terms at which it plans to lease its hotel properties to the private sector.

The terms of agreement sent to players, who had evinced interest in the hotel properties, include a fixed lease rental which would be the same as the rental charged by the Airports Authority of India from the India Tourism Development Corporation (ITDC) for its duty-free shops. Apart from lease rentals, HCI will charge close to 7 per cent of the turnover of the hotels.

While the total amount would be raised after every three years, the raise would not exceed 20 per cent of the total amount, the terms of agreement said. The properties would be leased for 29 years.

The disinvestment commission had earlier decided to sell or lease all the five properties separately in order to maximise proceeds from divesting its stake in the public sector issue and, thus, make the sale of Air-India more attractive.

The national carrier had put its hotel subsidiary on the block in October last. It has five hotels around the country with two in Mumbai, one each in Delhi, Srinagar and Rajgir in Bihar and an air-catering unit called Chefair.

Chase Jardine Fleming has been appointed the global consultant for HCI's privatisation.

Over 20 leading domestic and international players had evinced interest in Hotel Corporation. While both the Taj group and ITC hotels are closely looking at Centaur hotel near the Mumbai domestic airport, Bharat hotels is planning to pick up properties in Delhi and Srinagar.

ITC Hotels is also looking at the Delhi property and the Chefair unit. International players including Marriott and Accor are also eyeing the properties for expanding further in the country.

For Srinagar Centaur, the management of Air India has initiated dialogue with the Jammu and Kashmir government to exit from the ownership of the hotel. The administrative ministry and the board of Air India have accepted recommendations of the Commission and have appointed advisors.

The hotel company was formed in 1970 by Air India with an initial capital of Rs 40 crore. The divestment is expected to be complete within the current year. The divestment is expected to fetch Air-India around Rs 1,000 crore which would enable it to wipe out a major portion of the Rs 1,300 crore of the company's accumulated losses.