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SAT throws out ITC plea against Leela-Brookfield deal

A three-bench SAT led by presiding officer Tarun Agarwala and CKG Nair and MT Joshi in a 44-page order posted on its website dismissed the main contention that "the transaction is related-party in nature".

September 26, 2019 / 10:44 PM IST
 
 
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In a setback to tobacco major ITC, the Securities Appellate Tribunal on Thursday rejected its plea against sale of Hotel Leela Venture's key assets to Canadian PE major Brookfield for Rs 3,950 crore.

The SAT verdict boosts the troubled hotel chain's which is at the bankruptcy tribunal since February, along with its present management controlled by JM Financial ARC's efforts to sell four of its five hotels and come out of the insolvency process.

If completed, the Leela-Brookfield deal will be the largest foreign investment in the hospitality sector and culminates more than a year of talks between the two parties.

ITC had moved SAT after Sebi rejected its contention that sale of Leela's assets to Brookfield Asset Management should not be allowed because of related-party transactions and also because the deal would leave the hotel company with no operating or revenue earning assets barring one property.

A three-bench SAT led by presiding officer Tarun Agarwala and CKG Nair and MT Joshi in a 44-page order posted on its website dismissed the main contention that "the transaction is related-party in nature".

After the deal was announced in March, ITC had moved Sebi challenging the deal, following which the regulator asked Leela and JM Financial ARC to put on hold the deal.

The market's regulator had allowed JM Financial ARC, which owns 26 percent in the hotel chain, to vote on the Rs 3,950-crore deal but should not declare the results till the pendency of the case.

The SAT also vacated an earlier stay where it had directed Leela not to declare the postal ballot results till the matter was pending before the tribunal.

Besides, SAT also rejected ITC's plea to suspend its order for two weeks to allow the conglomerate to appeal. It can challenge the SAT verdict in the High Court and also in the Supreme Court.

On March 18, Brookfield had agreed to acquire four Leela hotels in New Delhi, Chennai, Bengaluru and Udaipur, and also a land parcel in Agra from for Rs 3,950 crore. The flagship Mumbai property is not part of the deal and together these five hotels have over 1,400 rooms.

After the deal announcement, Leela's minority shareholders ITC and LIC approached Sebi alleging that the sale violates the securities laws such as related-party disclosures and takeover code. They also alleged that JM Financial ARC was a related party and could not vote on the board resolution approving the deal.

In June, Sebi had said JM Financial ARC could not be treated as a related party under the Companies Act, 2013 or the Sebi regulations.

The stressed company, it said, has no other interest than using the proceeds for repaying debt. Sebi sought additional disclosures from Leela's promoters on the proposed deal. It called for fresh voting on the deal.

Following failure of a debt restructuring plan, the company transferred its loans from 14 creditors to JM Financial ARC in 2014. After this in September 2017, it allotted over 160 million shares aggregating to 26 percent of equity worth about Rs 275 crore to JM Financial ARC on conversion of debt to equity.

The Brookfield-Leela deal follows the filing of an insolvency petition by JM Financial ARC in late February against the hotel chain.

The deal, the largest in the sector, will also entail buying the Leela brand, existing and all upcoming management contracts of the chain and also absorbing the employees of the four hotels. The previous largest hotel sale was in 2014 when DLF sold Aman Resorts to Aman Resorts Group for Rs 2,250 crore.

PTI
first published: Sep 26, 2019 10:40 pm

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