Oberois may offload EIH stake to strategic investor

The promoters of East India Hotels Ltd, owners of the Oberoi brand and the largest hotel chain after the Tata-owned Indian Hotels and ITC Welcome Group, are in advanced discussions with leading corporate houses and private equity firms to divest a strategic stake, possibly 26 per cent.

Investment banking sources said Reliance Industries, through various associate companies, is one of the front-runners and that talks between the top managements of both groups are at an advanced stage.

A Reliance Industries spokesperson, however, denied this development.

P R S Oberoi, chairman and chief executive officer of EIH, confirmed that the group was in talks with several investors but said nothing has been finalised.

On whether Reliance Industries was in the fray, Oberoi said, "That is incorrect." He added, "Various people are coming to us with different kinds of proposals. We are discussing the issue."

The deal is expected to be signed at a substantial premium over EIH's market price because the underlying value of the assets is much higher than the company's market capitalisation of Rs 5,500 crore (Rs 55 billion).

Despite the sluggish market, the EIH share price has gained over 15 per cent in the last 10 trading sessions. On Thursday, it gained 7 per cent to close at Rs 139.60.

The last week saw two bulk deals on the EIH counter. An investor bought 1.4 million shares and on Thursday another 1 million shares changed hands.

Sources close to the development said the promoters, who hold 46.37 per cent in the company, are likely to retain 26 per cent. They may part with a minority stake and issue fresh shares on the preferential basis to the strategic investor.

The Anil Ambani investment company Sonata Investments had acquired 1.55 per cent in the company in 2007. ITC Welcome group also owns 14.92 per cent through its investment arm Russell Credit.

The company's net profit and turnover declined marginally for the first quarter ended June 2008. Net profit stood at Rs 36.7 crore (Rs 367 million) on revenue of Rs 215 crore (Rs 2.15 billion) for the quarter against a net profit of Rs 38 crore (Rs 380 millin) on a revenue of Rs 236.3 crore (RS 2.36 billion) in April- June 2007. For 2007-08, the company's net profit was Rs 223.5 crore (Rs 2.23 billion) on revenue of Rs 1,158 crore (Rs 11.58 billion).