ITC raises stakes in hotel rivals

ITC’s appetite for hotel rivals continues unabated. The diversified company from Calcutta has built up further positions in Hotel Leelaventure and EIH Ltd. Russel Credit, the investment arm of ITC, bought around 27.1 lakh shares in Leelaventure between January and March. During the same period, it acquired 93,943 shares in EIH, raising its holding to 14.98 per cent. This is the highest ITC has held in EIH, which owns Oberoi Grand in Calcutta, in the last seven years. ITC is now just 78,333 shares away from triggering an open offer. According to the Substantial Acquisition of Shares and Takeovers regulation of the Securities and Exchange Board of India, a company has to make a mandatory open offer for an additional 20 per cent once its holding in an entity reaches 15 per cent. As on December 31, 2008, ITC held 14.96 per cent in EIH. ITC has maintained that the share purchase is not strategic. In Leela, its stake is 3.72 per cent, which is not significant, though it is steadily acquiring shares. ITC checked into the Bangalore-based hotel chain in the September-December quarter of the last fiscal with a 3 per cent stake, as The Telegraph had first reported. When contacted to comment on ITC’s buying spree, an ITC spokesperson said, “These are routine treasury operations.” In the past, the EIH management had not given much importance to ITC’s shareholding in the company. ITC’s stake had remained near 15 per cent for a long period. Unless the cigarette-to-hotel conglomerate crossed the threshold, there was nothing for EIH to talk about, EIH officials had said. Leela has also remained silent on ITC’s overtures so far. “We do not disclose our plans. But as you can see, it is listed as a long-term investment in the balance sheet,” ITC chairman Yogi C. Deveshwar had said, while commenting on his company’s strategy for EIH at the annual general meeting in July 2008. ITC had picked up a stake in EIH — which owns and manages the Oberoi chain of hotels in India and abroad — in 2001, fuelling speculation of a hostile takeover. However, ITC held on to its stake without threatening to replace the EIH promoters or the management during the period. In the meantime, it strengthened its presence by setting up hotels. Promoters P.R.S. Oberoi and his family own a 46.42 per cent stake in EIH. If ITC decides to make an open offer for another 20 per cent, it cannot hope to get control of EIH unless a section of the promoter family offload their stake. ITC’s stake purchase in Leela would also not give the Nairs — the promoters of Hotel Leelaventure — any cause for worry as they hold a majority 51.56 per cent in the company. ITC ranks somewhere in the middle between EIH and Leela. EIH, formerly East India Hotels, has a bigger presence than ITC in India and abroad. ITC does not have an overseas hotel. Leela, on the other hand, is on an expansion mode, building on its oldest and most successful hotel in Bangalore.

Source: Telegraph

Elephant Capital Buys Into NIIT; Exits EIH Partially

Elephant Capital, an India-focused private equity fund, has picked up around 1.5% stake in IT education firm NIIT Ltd for around Rs 15.5 crore through secondary market purchases between March and November 2008. This is the fifth investment in India for the AIM-listed India focused private equity firm. Elephant Capital is yet to disclose this new investment.
Elephant Capital first acquired 0.6% stake (~1 million shares) in NIIT Ltd in March 2008 through the promissory notes route which is available to FIIs to invest in Indian public listed companies.

It added more shares (~1.6 million shares) of NIIT Ltd from the secondary market in October and November 2008 when the stock markets collapsed after the credit crisis following the bankruptcy of Lehman Brothers.

Elephant Capital's average cost of acquisition is around Rs 59 per share as against the current scrip price of Rs 15. Though the fund managed to pare down the notional loss on value of investment -- it originally invested when share price was trading in the range of Rs 100-120, it is still sitting on huge dilution in equity value (~75%).

Elephant Capital investment advisor, Gaurav Burman, replied through an email, "We have a policy at Elephant of not commenting on transactions that we are working on or involved in."

Formerly known as Promethean India, the fund is managed by a team led by brothers Mohit and Gaurav Burman (part of the Dabur group promoter family). The firm raised £50 million in early 2007 through a public float at the AIM market in London. Its existing investments in India include: Mahindra Forgings, Obopay, Nitco Ltd and EIH. Most of these transactions have been through small equity stakes picked largely through secondary market purchases.

Partial Exit In EIH:
Meanwhile, the company has also disclosed that it has made a partial exit from from one of its portfolio companies - EIH Ltd, which runs the Oberoi Group of Hotels. Elephant had first invested in the luxury hotel chain operator in August 2007 and its cost of investments was £7.13 million for around 5.4 million shares.

In December 2008, it sold 1.3 million shares for around £2.1 million with a realised profit of £0.3 million (~Rs 2.5 crore translating into a return of around 16% for these shares). The fund still owns around 4.1 million shares of EIH and now the share price is estimated to be 10-20% lower than the estimated cost of acquisition. This partial exit was the first liquidity event for Elephant Capital.

More Investments To Flow
Elephant Capital chairman Peter Burt in his statement has said that 58% of the fund or about £28 million remains uninvested. "We believe that leaves us ample opportunity to do approximately 3-4 transactions over the next 18 months," Burt said.

The fund is conducting due diligence on a firm which is engaged in a high growth consumer industry where ‘the barriers to entry is high’. It is also looking at a pipeline of transactions some of which could give Elephant Capital a controlling stake.