NDMC eases norms to spice up auction process of the iconic Taj Mansingh

The New Delhi Municipal Council (NDMC) is making a final attempt to take the auction process of the iconic Taj Mahal, also known as Taj Mansingh, to its logical conclusion. Besides bringing down the number of minimum bidders to two, from three earlier, the civic body has decided to lower the minimum net worth and average turnover requirements for prospective bidders. 

“Based on the experience from the last two tenders, need is felt to reduce the minimum number of bids required for a successful auction. It may be noted that many public auction processes carried out by various government entities allow for less than three bids,” an NDMC document noted.  It also cited a February guidance note of the Department of Investment and Public Asset Management that allows disinvestment to a strategic partner where there is more than one eligible bidder. 

In a recently held meeting, the NDMC decided to lower the minimum net worth requirement for prospective bidders to Rs 2 billion. The requirement was Rs 3 billion in the previous two tenders, which had to be scrapped. The auction process in the months of June and July was annulled because the Council failed to attract bids from minimum three entities. While Indian Hotels, the current operator of the luxury hotel, was the sole bidder in the first auction, rival ITC joined the fray in the second one. 

The NDMC has also relaxed the minimum average turnover criterion for bidders. The three-year average turnover requirement is relaxed to Rs 3.5 billion from Rs 4 billion earlier. Bidders can also now consider the 2017-18 audited results while calculating the three-year average turnover. Hotel companies have seen an uptick in revenues last year on account of higher occupancy and improved tariffs. 

Documents reviewed by Business Standard show the NDMC estimates that the successful bidder will have to invest Rs 2.84 billion in refurbishing the 292-room hotel, which has been operational since 1978. The next operator will also have to pay an upfront fee of Rs 533.6 million to the NDMC and a performance security of Rs 355.7 million. This means a total requirement of Rs 3.73 billion.

The NDMC is of the view that the bidder will go for a debt to equity ratio of 1:1 (like it happens in a typical hotel project) and therefore the minimum net worth criterion has been lowered. The Taj Mahal Hotel, the document shows, posted revenues of Rs 2.2 billion in FY17, with a growth rate of 12 per cent over the previous year.

The Council said these relaxations are being done with an attempt to widen the pool of eligible bidders even though the actual number of bidders may or may not go up. Industry experts said the number of bidders is unlikely to go up and Taj Mansingh may remain a two-way fight between Indian Hotels and ITC. “It will be really tough for a new operator to make money after making such investments in the property,” said an industry executive. 

Indian Hotels had signed a lease agreement with the NDMC in 1976 and the hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When the NDMC decided to auction the property, Indian Hotels challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.