Once a suitor for Belmond, IHCL now looking for the exit

(Taj Boston Hotel)

Mumbai-based Indian Hotels Company (IHCL), once in the hunt to acquire luxury hotel and travel operator Belmond, is now, instead, looking for the exit.

IHCL, a subsidiary of the Tata Group, which owns the Taj Group of hotels, has been selling off shares of Belmond, even after Belmond reported solid gains for the first quarter of the year. 

IHCL recently sold a 5.1-percent stake in Belmond (formerly Orient-Express Hotels) for $49.5 million. The sale comes four months after the company sold a 1.24-percent stake in the brand for $11.96 million, and more than two years after Tata Group’s flagship hospitality firm decided not to pursue its takeover bid for the luxury hospitality chain.

The company said on Friday that the money would be used to repay debt, which as of December stood at Rs 4,833 crore. Its investment holding unit, Samsara Properties, continues to hold 0.44 percent of the Class-A Common Shares of Belmond.

IHCL & Belmond

At an average price of $9.57 per share, IHCL is still not recuperating all of the $35-per-share it paid to buy the shares seven years ago. (The February sale commanded an average price of $9.4 per share.) The latest sale price is also lower than the $12.63 a share offered by IHCL to buy Belmond in 2012. IHCL has, in total, paid more than Rs 1,000 crore for the Belmond shares.

From 2007 to 2009, IHCL built up its minority stake of the erstwhile Orient-Express Hotels in stages. It started buying shares at the peak of the market as a first step in a possible takeover bid nine years ago. At the time, the Orient-Express board rejected a takeover, forcing IHCL to opt for a minority stake instead. IHCL signed an agreement with Montezemolo & Partners, an Italian firm owned by the Montezemolo family (the manager of Charme II Fund), which was to hold a minority stake in the special purpose vehicle (SPV) set up for the transaction.

Belmond’s management holds Class-B shares in the company, which have many times the voting power of Class-A shares. This makes a hostile or unsolicited takeover attempt virtually impossible, and has preserved the company's independence. 

Reducing Debt

To pare its debt down, IHCL has started shifting toward an asset-light model even as it increases its brand presence globally and domestically. In May, the firm announced plans to sell its Taj Boston hotel (pictured above) for a base price of $125 million, reportedly to a group of investors led by Boston-based real estate development firms New England Development and Eastern Real Estate. The property—one of three the group owned in the U.S.—was acquired 10 years ago for $166 million. 

IHCL's move to sell Belmond shares comes after Belmond reported a strong first quarter of the year, with total revenue up $8.1 million (or 9 percent over the same quarter in 2015) and total adjusted EBITDA up $5.2 million over the prior-year quarter. 

"Looking forward, we continue to forecast healthy year-over-year growth for the full year 2016,” Roeland Vos, Belmond president and CEO, said. “Although we currently see potential challenges for select parts of our portfolio in the second quarter, we expect that this temporary softness will be more than offset by a strong third quarter. We anticipate that our third quarter growth will come largely from increased demand for our European hotels during their peak summer months as well as the benefit of the Summer Olympic Games on Belmond Copacabana Palace in Rio de Janeiro, Brazil. For the full year 2016, we are maintaining our guidance for same store, constant currency RevPAR growth of between 3 percent and 7 percent.”