Indian Hotels to raise Rs 250 cr for acquisitions, modernisation

Our Corporate Bureau

Mumbai, Jan 3: The Board of directors of Indian Hotels Company Ltd (IHCL) has taken an in-principle decision to raise additional long-term funds up to Rs 250 crore, which would be used for the company’s modernisation programme, to reduce existing high-cost borrowing and new acquisitions.

In a press note, the company has stated that the funds would also enable the company for routine capital expenditure and expansion programme. IHCL plans to raise the long-term funds through two sources.

The first is through a private placement of ‘secured premium bonds’ with warrants for an amount of up to Rs 250 crore with a low coupon rate. This, together with a redemption premium would give a yield-to-maturity not exceeding 10.50 per cent per annum. The bonds would have attached warrants exercisable at a price of Rs 150 to Rs 200 per share to be determined at the time of the issue.

The second option before IHCL is to arrange a low coupon yen loan of up to an equivalent of $25 million on terms to be negotiated with lenders.

Said IHCL managing director, R Krishnakumar: "The timing of this issue was important as the business environment and the financial market has experienced a drastic change since September 11. We would like to also take benefit of the prevailing low interest rates in the markets specially when our business outlook has improved in the month of December 2001".

The current issue is part of the $75 million fund raising plan for which the company had secured approval during its annual general meeting held on August 31, 2001.

The company has said that the additional funds would help in reducing the interest costs by approximately Rs 15 crore per annum compared to its existing level of borrowing cost. This will give effect to an increase in the earning per share (EPS): by Rs 3.2 to Rs 4.25. For the year ended March 2001, the company’s EPS stood at Rs 25.88.

The bonds would be allotted to investors shortly and the warrant shareholders will be entitled to equity shares after 18 months of allotment.

Post-warrants, the equity capital will marginally rise to Rs 47.25 crore from Rs 45.12 crore, an increase of 4.5 per cent. The pricing will be decided once the final bids from the various investors are received in the next couple of weeks.

IHCL has said that it is in the process of talking to both local and foreign investors and investment bankers.