Second time unlucky: Taj Mansingh hotel auction draws just two bids

Indian Hotels, the current operator, and ITC submit technical bids

The road to auction of Delhi’s iconic five-star hotel Taj Mahal (popularly known as Taj Mansingh after the road on which it is located) seems unending for the capital’s civic body, New Delhi Municipal Council (NDMC). The council's second attempt to auction the property a month after the one first failed, has attracted only two bids, one less than the minimum three required to take the auction process ahead. Apart from Indian Hotels Company Ltd (IHCL), which is the current operator, tobacco-to-FMCG conglomerate ITC is learnt to have submitted bids on Monday.

As per the tender conditions, NDMC would have conducted the auction on July 18 had it managed to get a minimum of three bids. The auction process for Taj Mansingh will have to be conducted again on a future date that will be decided by NDMC, said a person familiar with the developments. The tender rules said the auction process will be annulled in case the process attracts less than three bidders.  

Interestingly, NDMC successfully completed the auction process for two lesser known and smaller properties in the capital- The Connaught and Hotel Asian International- also built on NDMC land- last month. These two hotels had received three bids each. IHCL won the lease for The Connaught. 

On June 7, the first date for receipt of technical bids, NMDC had received only one bid for Taj Mansingh from IHCL, forcing it to suspend the process. It, however, decided to call for fresh bids using the same tender conditions and on Monday got two bids. The surprisingly lukewarm response from the hotel industry at a time when the sector is seeing an uptrend indicates that hotel companies were not much enthused with the financial terms and certain conditions of the tender. 

In spite of a relaxation in certain conditions in the second tender floated by NDMC in April, a number of hotel companies did not qualify. Some said the responses to queries raised by prospective bidders in pre-bid meeting were not satisfactorily answered. Companies said the tender conditions were too ‘restrictive’. Take the issue of bid security amount for instance. The tender said if a bidder is found to have failed to meet the eligibility conditions specified in the tender documents the security amount shall be forfeited by NDMC as ‘liquidity damages’.  This bid security amount is Rs 250 million. 

Some companies also said the financial demands of NDMC from the winner was on the higher side.  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. The lease period for the property was kept at 33 years, the same duration awarded to IHCL over four decades ago, in 1976. This was also seen as a short duration by some industry players. 

The winning firm will have to start paying money to NDMC from day one even though the actual hotel operation and income may take multiple months to begin. The hotel needs a complete renovation and it may take more than a year during which the regular guests of Taj Mansingh would have shifted to other hotels, said an industry executive. 

Tata group-owned IHCL 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 NDMC decided to auction the property, IHCL challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.