Window opens for Taj to exit Belmond

Share buy-back program for class A common stock will have an outlay of up to $75 mn, Belmond said

In an attempt to reinvest in its core business, Bermuda-based Belmond (formerly Orient-Express Hotels) has announced a share repurchase programme that allows shareholders, including India’s hotel chain Taj Group, to exit the company.

The buy-back programme for the class-A common stock will have an outlay of $75 million, Belmond has said. “Shares may be purchased in the open market or in privately negotiated transactions,” the company added.

After turning down a sell-out offer from the Tata group-promoted Indian Hotels Company Ltd, or IHCL (the holding firm of the Taj Group), terming it “too cheap”, Belmond's share price has reflected its struggling performance. Two years on, Belmond's stock price continues to trade lower than the offer price.

IHCL holds 7.13 million class-A common shares of Belmond, a 6.9 per cent stake. The Mumbai-based company is the second-largest individual shareholder in Belmond, with a voting right of 2.5 per cent.

When asked if IHCL would encash its holding in Belmond and participate in the buy-back, an IHCL spokesperson said, "The company will not be able to respond at this stage".

A total of Rs 1,200 crore has been invested by IHCL into buying shares of Belmond over several months. Some shares were bought at the peak of a bull market, which valued the shares more than five times their current worth.

An analyst based in Mumbai said, "For IHCL to exit Belmond now, it will have to make sure it at least reduces the gap between the buying and selling prices of shares, if it cannot make any profits. IHCL has taken a hit on its books on its investment in Orient-Express Hotels."

Belmond, which has luxury hotels in countries and conducts luxury travel adventure, has had a poor run on the New York Stock Exchange. The company posted its seventh straight yearly loss last year, but managed to trim losses to $1.88 million from $31.55 million in 2013.

In recent years, Belmond's capital allocation approach has been to use available cash to repay debt and reinvest in its core business.

The company’s board of directors believes a buy-back will be an important additional component to the company’s ongoing capital allocation strategy.

In a conference call with analysts John Scott, president and cheif executive, Belmond said, \"We are looking at all types of capital allocation including investment for additional growth. But that share repurchase is something that shareholders have mentioned, something we are actively looking at. We want to do that with discipline but also caution to make sure that we – it is not a short-term thing that actually ends up impacting us from a leverage perspective. So we are cautious as it relates to our leverage. But we are – we recognize that we are in a different position today as it relates to liquidity especially as it relates to future asset sales generating additional liquidity."