ET: Leelaventure announces new dates for shareholder voting on Brookfield deal

13 August 2019: While declaring its results for the quarter ended June, Hotel Leelaventure said it was seeking fresh approval of the shareholders by postal ballot for its sale of assets to Brookfield. Leelaventure said voting will begin on August 18 and will end on September 16. The company said it will declare the results of the postal ballot September 18.

Last month, Sebi had asked Hotel Leelaventure to put to vote afresh the asset sale transaction of the company before the shareholders besides providing additional disclosures in its postal ballot notice for asset sales to Brookfield like details of valuation of both the asset sale transaction and additional intellectual property transaction including the methods adopted by the company.

Tobacco-to-hotels conglomerate ITC had challenged the transaction in the dedicated bankruptcy court, National Company Law Tribunal (NCLT) in April, claiming mismanagement and oppression of minority shareholders and had also complained to Sebi.

In March this year, Leela Venture announced that Canadian alternative asset management company Brookfield had agreed to purchase its key hotel properties in Delhi, Bengaluru, Udaipur and Chennai for Rs 3,950 crore.

The company reported a loss of Rs 7.52 crore for the quarter under review, compared to a loss of Rs 66.69 crore in the corresponding period of the previous fiscal.

Leelaventure reported a total income of Rs 329.4 crore down from Rs 359.5 crore in quarter ended June 30, 2018.

Referring to the proposed asset sale to Brookfield, the company’s auditors said if the interest and other finance costs notified by the asset reconstruction companies were provided in the books of accounts, the loss for the quarter would have been higher by Rs 234 crore. The auditors also said relating to enhancement in rentals, unilateral termination of lease of the Mumbai hotel and initiated eviction proceedings which the company is legally contesting, the disputed amount not provided in the books for the quarter ended June 30 was Rs 3.52 crore. The notes further added that related to the demands made by Airports Authority of India relating to rent, minimum guarantee fee in respect of the lease of 11,000 square meters of land in Mumbai cumulatively amounting to Rs 807 crore upto January 31, 2019 is not provided as the liability is disputed and not crystalised as per the legal opinion.

The Economic Times reported

MC: SEBI directs Hotel Leela to make additional disclosures to shareholders on asset sale

23 July 2019: Markets regulator Sebi on July 23 directed Hotel Leela Venture Ltd to make additional disclosures to its shareholders on sale of assets. Besides, the watchdog would initiate adjudication proceedings against JM Financial Asset Reconstruction Company (JMF ARC) for failing to comply with provisions of takeover norms.

The ruling has come on complaints received from minority shareholders of Hotel Leela alleging violations in relation to postal ballot notice, dated March 18, wherein the company had sought approvals regarding sale of assets to Brookfield.

At the end of June, JMF ARC owned 26 per cent stake in Hotel Leela.

The regulator had received ITC and LIC — minority shareholders in Hotel Leela — alleging violations by promoters and JMF ARC in respect of asset sale transaction mentioned in the postal ballot notice.

In its order, Sebi said Hotel Leela should provide various additional disclosures in the postal ballot notice, including all relevant details of each of the sale transactions.

Details of valuation of both asset sale transaction and additional IP transaction, including the methods adopted by the company, should also be disclosed.

During the course of the postal ballot, the valuation reports shall be kept for inspection by the shareholders of Hotel Leela, it added.

“Sebi may initiate adjudication proceedings under the Sebi Act against JMF ARC for its failure to ensure compliance with the applicable provisions of the Takeover Regulations, as deemed fit and appropriate,” the order said.

Moneycontrol reported

FE: Leela-Brookfield deal: Conclude probe in two weeks, NCLT directs Sebi

9 July 2019: The National Company Law Tribunal (NCLT) on Monday directed the Securities and Exchange Board of India (Sebi) to wrap up its investigations into the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield in about two weeks, during a hearing on the bankruptcy case against Hotel Leelaventure initiated by JM Financial Asset Reconstruction.

This was after the counsel representing the regulator intimated the tribunal that it will take up to three months to complete ongoing investigations of the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield, based on complaints it received from minority shareholders ITC and Life Insurance Corporation of India (LIC).

The NCLT has adjourned hearing on the case to July 25.

During the proceedings, Ashish Pyasi of Dhir & Dhir Associates, counsel to Hotel Leelaventure, argued that Sebi had been directed by the NCLT to complete its examination of ITC’s complaint by July 8, but the regulator had not done so, having been provided information by Hotel Leela and JM Financial Asset Reconstruction Company.

The counsel further said in view of the injunction, the deal with Brookfield is stalled and cannot be acted upon, further suggesting that hearing be deferred because of these “peculiar circumstances”.

In an exchange notice dated March 18, Hotel Leela informed it has entered into a binding agreement with a Brookfield Asset Management (Brookfield)-sponsored private real estate fund to sell by way of slump sale, four hotels the Leela Group owns. They are located in Bengaluru, Chennai, Delhi and Udaipur. The property it owns in Agra was subject to approval of shareholders, lenders and other regulatory, statutory approvals.

A postal ballot notice seeking shareholders’ approval to this sale was also issued, with the voting period ending on April 24.

According to a letter to Hotel Leelaventure, Sebi had already sought comments from the company on alleged violation of provisions pertaining to related-party transactions.

The regulator’s directions came within hours of an ITC petition in the NCLT against Hotel Leelaventure, alleging suppression and mismanagement of minority shareholders.

ITC’s petition objected to the Brookfield transaction, alleging it would leave Hotel Leelaventure a mere shell with only liabilities while allowing promoters to benefit while leaving minority shareholders holding worthless shares with no underlying business or assets.

The Financial Express reported

ET: ITC trying to scuttle deal with Brookfield, claim Leelaventure promoters

25 June 2019: Promoters for Hotel Leelaventure on Monday told the National Company Law Tribunal that minority shareholder ITC was trying to scuttle their deal with Brookfield, because the Canadian asset manager could pose it challenges in the hotels industry in India.

ITC, which held a 7.92% stake in Leelaventure at the end of March as per stock exchange data, had moved the NCLT, complaining oppression of minority shareholder interest and mismanagement by the promoters and JM Financial ARC that held a 26% stake in the hotels chain after the conversion of debt into equity. The tobacco-to-hotels conglomerate had also filed a separate application seeking a waiver of the 10%-shareholding threshold needed to raise such complaints against a company.

Leelaventure told the NCLT that ITC wanted to block its deal with Brookfield to sell some properties because it didn’t want to face a “global giant” with hotel assets worth $13 billion. “ITC is currently a rival to Brookfield and does not want to face Brookfield once it comes to India with all its might,” Ravi Kadam, a senior counsel appearing for the promoters of Leelaventures, told the tribunal.

Kadam was also responding to ITC counsels’ claim that Brookfield, being a PE fund, did not have expertise in running a premier hotel chain in India and was hence paying Rs 300 crore to the promoters of the company and entering into “side deals” with them while leaving minority shareholders out.

Brookfield has 275 hotels across the globe but doesn’t have any in India, so it needs someone with knowledge of the local market, said the lawyer. He said the proposed payment of Rs 300 crore was “contingent” on the promoters fulfilling certain targets with half of it being a payment for the trademarks belonging to the promoter family.

The Economic Times reported

FE: ITC plea on mismanagement of minority shareholders ‘abuse of process’: JM Fin ARC

20 June 2019: ITC’s petition alleging oppression and mismanagement of minority shareholders against Hotel Leelaventure is an ‘abuse of process’, senior advocate Janak Dwarkadas representing JM Financial Asset Reconstruction Company told the National Company Law Tribunal (NCLT) on Wednesday, adding that ITC’s waiver application ‘must go’ as well.

JM Financial ARC is a respondent to the ITC petition.

To be eligible to pursue its petition to stop the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield, currently under investigation by the Securities and Exchange Board of India (Sebi), ITC as minority shareholder in Hotel Leelaventure has sought waiver of the minimum shareholding requirement.

In April, ITC had moved the NCLT, alleging oppression and mismanagement under Section 241 of the Companies Act, 2013, along with a waiver application, arguments for which are being heard by the NCLT this week.

According to the shareholding pattern for the quarter ended March, ITC holds a 7.92% stake in Hotel Leelaventure, failing to meet the minimum threshold of 10% shareholding listed under Section 244 of the Companies Act among requirements for the right to apply under section 241.

As part of arguments, Dwarkadas told the NCLT that ITC’s application must be seen in light of the fact that it is a competitor of Hotel Leelaventure. Dwarkadas further compared ITC’s incremental investments over the years in a non-dividend, loss-making entity such as Hotel Leelaventure to a lion stalking its prey.

He further referred to ITC’s claim under its petition that the ARC was using the IBC proceedings as a means to pressure promoters into selling virtually the entire business undertaking, and announced a ‘with prejudice offer’ that ITC could pay JM Financial ARC Rs 7,000 crore and take its 26% stake within the company.

ITC’s petition objects to the Brookfield transaction, alleging it would leave Hotel Leelaventure a mere shell with only liabilities while allowing promoters to benefit while leaving minority shareholders holding worthless shares with no underlying business or assets.

Its petition also noted that JM Financial ARC and the promoters were not identified as “related parties”, although JM ARC holds a stake of 26% in Hotel Leela, following conversion of a part of its loan amounting to about Rs 275 crore in September 2017.

Sebi advised Hotel Leelaventure not to act on the proposed sale of company’s properties to Brookfield and started an investigation following complaints from minority shareholders ITC and Life Insurance Corporation of India (LIC).

Hotel Leela Venture had said, in an exchange notice dated March 18, it had entered into a binding agreement with a Brookfield Asset Management (Brookfield) sponsored private real estate fund, to sell by way of slump sale, four hotels in Bengaluru, Chennai, Delhi and Udaipur and the property that it owns in Agra.

The proposed transaction would also involve transferring the Leela brand by the promoters to Brookfield for all hospitality businesses.

Dwarkadas also reiterated that JM Financial ARC was merely acting as a trustee on behalf of the 14 other lenders with exposure to 94% of total debt and its own 6% exposure.

He further stated that prior to the conversion of debt to equity, the debt in ratio to equity capital stood at 47.33 times, which later came down to 17 times the equity capital, indicating the company had benefited from the loan conversion.

Senior counsel Ravi Kadam also presented his arguments on behalf of the promoters of Hotel Leelaventure. The NCLT has adjourned the matter to June 24.

The Financial Express

CG: Pay 70 bln rupees to take over Hotel Leela, JM Fincl ARC tells ITC

19 June 2019: JM Financial Asset Reconstruction Co Ltd today told ITC Ltd to clear the 70-bln-rupee debt owed by Hotel Leelaventure Ltd if it is interested in saving the debt-ridden hotelier.

The comments came as part of the asset reconstruction company’s arguments before the National Company Law Tribunal, in response to ITC’s plea to waive off minimum shareholding requirement to move the oppression and mismanagement suit against Hotel Leelaventure.

A minority shareholder has to own at least 10% stake in the company to initiate such proceedings. However, the tribunal, at its discretion, can dispose of the requirement.

ITC had filed the mismanagement suit against Hotel Leelaventure, challenging the sale of four assets to Brookfield Asset Management for 40 bln rupees and JM Financial ARC’s 2017 acquisition of 26% stake in the company by converting debt to equity. 

ITC can repay Hotel Leelventure’s debt to acquire controlling stake, if it feels the asset sale to Brookfield is not in the interest of the company, JM Financial ARC, represented by senior counsel Janak Dwarkadas, told the tribunal.

JM Financial ARC further told the tribunal that it is only interested to recover its dues from Hotel Leelaventure and does not want to acquire its properties. Separately, JM Financial ARC has filed an insolvency plea against the company, which is pending before the tribunal.

Hotel Leelaventure’s proposed asset sale has derailed the hotels-to-cigarettes conglomerate’s ploy to acquire the debt-laden company’s hotels at a discount, the asset recast company told the tribunal.

JM Financial ARC also questioned ITC’s move to acquire minority stake in Hotel Leelaventure in 2010, at a time when the company was already posting heavy losses.

Such conduct, according to JM Financial ARC, is not eligible for granting a waiver, the tribunal was told.

Earlier, the company law tribunal had deferred the hearing of ITC’s plea as the Securities and Exchange Board of India had put the asset sale on hold and was conducting an independent hearing on the issue.

However, ITC on Tuesday began its arguments on the waiver application to save time, in case it receives an unfavourable verdict from SEBI.

ITC argued that although it held 11% stake in Hotel Leelaventure at a point, because of the share issue to JM Financial ARC, its stake was diluted to 7.92%.

ITC, in its plea, has alleged that the asset sale to Brookfield will leave Hotel Leelaventure with almost no business, except for a hotel in Mumbai, which is already in dispute. 

Today, shares of ITC ended 0.8% higher at 277.20 rupees on the National Stock Exchange, and those of Hotel Leelaventure ended 5.6% lower at 7.55 rupees. 

As reported by Cogenics

FE: Leela Hotels sale: ITC argues for waiver of minimum shareholding norm

19 June 2019: ITC, a minority shareholder in Hotel Leelaventure, on Tuesday sought to argue on its application for waiver of the minimum shareholding requirement. This comes as its petition alleging oppression and mismanagement of minority shareholders effectively remains on hold amid ongoing investigation by Sebi into the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield.

April, ITC had moved the NCLT against Hotel Leelaventure alleging oppression and mismanagement under Section 241 of the Companies Act, 2013, along with a waiver application.

According to the shareholding pattern for quarter ended March, ITC holds a 7.92% stake in Hotel Leelaventure, failing to meet the minimum threshold of 10% shareholding listed under Section 244 of the Companies Act among requirements for the right to apply under Section 241.

Section 241 states member of a company can file a petition based on complaint that “affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company”.

ITC’s main petition objects to the Brookfield transaction, alleging it would leave Hotel Leelaventure a mere shell with only liabilities while allowing promoters to benefit and leaving minority shareholders holding worthless shares with no underlying business or assets. Its petition also noted that JM Financial ARC and the promoters were not identified as “related parties”, even though JM ARC holds a stake of 26% in Hotel Leela, following conversion of a part of its loan amounting to about Rs 275 crore in September 2017.

Sebi has advised Hotel Leelaventure not to act on the proposed sale of company’s properties to Brookfield and started an investigation following complaints from minority shareholders ITC and Life Insurance Corporation of India (LIC).

Hotel Leela Venture had said, in an exchange notice dated March 18, it had entered into a binding agreement with a Brookfield Asset Management (Brookfield) sponsored private real estate fund, to sell by way of slump sale, four hotels in Bengaluru, Chennai, Delhi and Udaipur and the property that it owns in Agra. The proposed transaction would also involve transferring the Leela brand by the promoters to Brookfield for all hospitality businesses.

Laying the ground in support of the waiver application, the counsel to ITC argued that ITC had the largest stake among minority shareholders, suggesting no other minority stakeholder was in a position to approach the tribunal. He further alleged that almost 99% of the ‘non-interest stakeholders’ and all of the ‘public’ stakeholders had voted against the proposed sale of company’s properties to Brookfield.

Meanwhile, in a bid to dismantle ITC’s arguments, senior counsel Navroz Seervai, appearing on behalf of Hotel Leelaventure, tagged ITC’s petition as ‘grossly mala fide application’. He suggested ITC’s application against the Brookfield deal, which could otherwise resuscitate Hotel Leelaventure, was done because ITC, as a trade rival with its own chain of hotels, had more to gain if the deal fell through.

The counsel to Hotel Leelaventure further noted that JM Financial was representative of other banks within the consortium, who would also ‘partake’ in the Brookfield transaction. The counsel further alleged that ITC did not vote in a 2013 ballot that put before the shareholders resolutions to to confirm the corporate debt restructuring scheme in relation to the company’s debts and the scheme to approve the issuance of equity shares to CDR Lenders/Security Trustee/Monitoring Institution upon exercising their right to convert loans into equity shares in future. Nor did ITC, the counsel further alleged, vote in 2017 on a resolution after JM Financial ARC called upon the Company to convert part of the existing outstanding dues aggregating to Rs 275.09 crore into 16,39,43,459 fully paid up equity shares of Rs 2 each.

Seervai suggested that by not voting on these resolutions, neither exhibiting assent or dissent, ITC had through its ‘conduct’ indicated that it had ‘acquiesced’. For filing its petition this late in the game, Seervai referred to ITC as a ‘slumbering giant’.

The NCLT adjourned the matter to June 19. Hotel Leelaventure promoters are expected to make their arguments then.

The Financial Express reported

ET: ITC had also challenged the transaction in NCLT, claiming mismanagement and oppression of minority shareholders by the way the deal was structured

11 June 2019: ITC has said it has not made any offer to acquire the assets of Hotel Leela venture, putting to rest speculation that it is keen to acquire the assets at a lower cost being a competitor, and which is why it has thrown a spanner in the Brookfield deal.

It will be communicated to the NCLT which will hear the Leela venture case on June 18, two senior industry executives said. The Securities and Exchange Board of India (Sebi) had in April stalled Brookfield’s takeover of key Leela properties, sending the deal under investigation, after ITC, which owns 7.92% in Hotel Leela venture, and Life Insurance Corporation, which has 2.38%, filed complaints.

ITC had also challenged the transaction in NCLT, claiming mismanagement and oppression of minority shareholders by the way the deal was structured.

The executives said ITC is not interested in taking on the huge debt of Leela on its books and does not see any value of capacity expansion through buying Leela assets.

ITC will, instead, press for proper return on investment for the minority shareholders. The deal, it feels, is structured in such a way that Leela venture will become a shell entity with just one disputed property in Mumbai, deriding the value of minority shareholders, the executives said. Even the company will lose the right to use Leela brand name as it has communicated to the bourses, they said.

“The matter is sub-judice, and hence, we will not be able to comment,” an ITC spokesperson said in an emailed response. “However, we wish to categorically state that ITC has not made any offer to JM Financial for the assets of Leela. Such wrong information is being circulated with mischievous intent by vested interests to influence outcomes.”

JM Financial, the parent of JM Financial Asset Reconstruction Company that holds 26% in Leela venture after conversion of debt into equity, had acted as the exclusive financial advisor for the deal.

Leela venture, which has a debt of around Rs 7,500 crore, announced in March that Canadian alternative asset management company Brookfield had agreed to buy its key properties in New Delhi, Bengaluru, Udaipur and Chennai for Rs 3,950 crore in a slump sale. The promoters and their affiliates would get a consideration of Rs 300 crore for any asset-related intellectual property rights they hold and for business expansion services that they provide to the investor.

Emails sent to JM Financial and Leela venture on whether ITC had expressed an interest in acquiring Leela venture assets did not elicit any response till press time Monday.

A section of the industry, however, feels ITC had spoiled the deal. The CEO of a hotel chain said that filing an objection at such a stage was clearly done with an intent to sabotage the deal.

The Economic Times reported

ET: Of Leelaventure’s total debt of Rs 7,500 crore, HDFC had advanced about Rs 826 crore.

8 June 2019: Stakeholders in debt-laden Hotel Leelaventure are apprehensive that a deal to sell company assets to Brookfield may go the way of Jet Airways after the market regulator stalled the transaction.

The Securities and Exchange Board of India, which acted on complaints by minority investors ITC and Life Insurance Corporation of India, has yet to take a decision on the matter.

“I don’t know what the objection of the shareholder (ITC) to this is, other than the fact that they are in the same business,” Keki Mistry, vice-chairman of Housing Development Finance Corporation, one of the lenders to Leelaventure, told ET. “In any merger, there will be some shareholders who will object and here the shareholder is actually a competitor. I am sure Sebi will look at that as well.”

Of Leelaventure’s total debt of Rs 7,500 crore, HDFC had advanced about Rs 826 crore.

The stakeholders are concerned that delays in completing the deal would dissuade investors and dilute brand equity much like Jet Airways. The debt-laden airline was grounded and has failed to find investors.

Tobacco-to-hotels conglomerate ITC, which holds a 7.92 per cent stake in Leelaventure, challenged the transaction in the National Company Law Tribunal (NCLT) in April, claiming mismanagement and oppression of minority shareholders.

After ITC approached Sebi, the market regulator asked both parties to wait till it examines the complaints. LIC, India’s largest life insurer, holds a 2.38 per cent stake in Leelaventure.

“The shareholders of Leela, both in numbers and value, have… approved the transaction. It is important that the deal gets cleared at the earliest,” Mistry said.

Almost 86 per cent of all shareholders in a postal ballot voted in favour of the deal and over 70 per cent of the institutional and non-institutional shareholders supported it.

Emails to Leelaventure and ITC went unanswered till the time of going to press. Brookfield declined to comment.

Leelaventure announced in March that Canadian alternative asset management company Brookfield had agreed to purchase its key hotel properties in New Delhi, Bengaluru, Udaipur and Chennai for Rs 3,950 crore in a slump sale. The promoters and their affiliates would also get consideration of Rs 300 crore for any asset-related intellectual property rights they hold and for business expansion services that they provide to the investor.

“The pause by Sebi on the country’s largest hotel acquisition transaction of Leela’s hotels does not augur well for the positive sentiment that has built up for hospitality transactions,” said Mandeep Lamba, president, South Asia, at HVS Anarock, a consultancy firm.

Hotel transaction volumes were expected to cross $800 million in 2019, the highest ever for the Indian hospitality sector, following the deal announcement, HVS Anarock had said.

“This defeats the very purpose of the NCLT disposition of nonperforming assets, where timebound completion of asset sales is the key component towards resolution,” he said.

ITC failed to get immediate relief from the NCLT in April after the tribunal cited a Companies Act provision that requires entities to own at least 10 per cent of the issued share capital to file such petitions.

All parties including JM Financial ARC, which holds a 26 per cent stake in the company after the conversion of debt into equity, were given time to reply and the next NCLT hearing on the matter is scheduled on June 18.

ITC had made an offer to lender JM Financial ARC, which holds most of Leela’s debt, for Leelaventure’s assets and if Brookfield walks away, the value of those properties would slide because the next best offer for the assets was Rs 3,000 crore, people familiar with the matter said.

“Selling Hotel Leelaventure’s properties in a fractional manner as against the entire company is unlikely to fetch value and can prove to be value destructive for shareholders as well as lenders,” a lender said.

All stakeholders that ET contacted are concerned over hurdles in the way of closing the deal.

“The transaction will help resolve the debt issue, protect shareholder value, protect jobs and most importantly, bring in foreign investment. When was the last time we have seen foreign direct investment in the Indian hospitality sectors ” asked an investor, who spoke on condition of anonymity.

The investor said most hospitality deals are brand and management contracts that take money out of India and in contrast, this transaction would bring in Rs 3,950 crore, which is just the initial investment.

The Economic Times reported

ET: NCLT accepts Hotel Leelaventure’s request to hear petition after 6 weeks

29 May 2019: The bankruptcy court has given Hotel Leelaventure six weeks before it would take up an insolvency petition against the hotel chain, and asked the markets regulator to complete its examination of the company’s asset-sale deal with Brookfield within that time.

BSE-listed Leelaventure had sought the National Company Law Tribunal more time before it starts hearing the petition filed by lender JM Financial Asset Reconstruction Company. The company said it had already initiated a process to sell assets to repay the debt, but the deal with the Canadian investor had been stalled after the Securities and Exchange Board of India asked it to hold off on it.

“The board of the company as well as majority shareholders have approved the asset sale to Brookfield. However, the deal is on hold by Sebi after ITC and LIC have objected to it,” Ashish Pyasi, an advocate at law firm Dhir & Dhir Associates who was appearing for Leelaventure, told the NCLT. “Sebi asked both parties to wait till it examines complaints against Leela and JM Financial by both ITC and Life Insurance Corporation of India. This will take substantial time and hence we are seeking an adjournment of four months,” he added.

However, the Mumbai bench of NCLT, presided over by VP Singh and Ravikumar Duraisamy, Tuesday observed that the tribunal couldn’t allow that long a time and adjourned the case to July 8. The tribunal asked Sebi to complete its examination before the next date of hearing.

ITC, which held 7.92% in Leelaventure at end of March, approached the NCLT on April 22.

The Economic Times reported