Indian Hotels down 5%; street wary of fresh bid for Orient

Moneycontrol Bureau

Shares of Tata group owned Indian Hotels tumbled over 5% on Friday morning as investors questioned the luxury hotel operator's latest attempt to bid for US-listed Orient Express Hotels, which will cost over USD 1 billion.

Indian Hotels, through its subsidiary Samsara Properties, already holds 6.9% stake in Orient Express, the operator of high-end hotels, cruise and train services. Late on Thursday it said that it along with charme II fund, managed by Italian Montezemolo & Partners has proposed to buy the remaining 93.1% stake in Orient Express at USD 12.63 a share, a 40% premium to the stock's closing price on Wednesday.

This is not the first time that Indian Hotels has bid for the Bermuda-headquartered company.

Orient Express had turned down an earlier offer from Indians Hotels to form a strategic alliance, five years ago.

"The company believes that a combination of itself and Orient Express Hotels is a strategically compelling opportunity for both companies as also for its respective shareholders," Indian Hotels said in a filing to the stock exchanges.

It will finance the acquisition via mix of debt and equity and total funds required to consummate the deal are in place, the company said.

According to a Reuters report, IHCL has secured funding, including debt, from Bank of America, ICICI Bank and Standard Chartered Bank and Bank of America Merrill Lynch is advising it on the deal.

However, analysts questioned IHCL's move given the slowdown that has hurt the hotel industry amid the overall global economic downturn over the last one year and the fact that the company is already struggling financially.

Indian Hotels had reported a consolidated loss of Rs 33.4 crore in the first quarter (April-June), wider than the Rs 22.2 crore loss in Jan-March and Rs 3 crore profit a year ago.

"Given that there is already a strain on IHCL's financials and the global slowdown, don't think this aggressive bid for Orient Express is a good move," Neha Majithia, an analyst at Microsec Capital told moneycontrol.com.

There is already more supply in the market than demand for luxury hotel rooms for the past one year now and given that IHCL has aggressive expansion plans of its own, this is probably a wrong time for acquisition, she added.

Majithia, who has a "buy" rating on IHCL see demand picking up from the fourth quarter onwards. As far as this bid is concerned, she is awaiting further clarity, given that Orient Express has not yet responded to this bid and in the past, has resisted any deal with the Tata group company.

At 10:45 hrs IHCL shares were down 4.8% at Rs 66.95 on NSE.

Nachiket Kelkar
nachiket.kelkar@network18online.com