Sebi halts Rs 4,000 crore sale deal between Leela, Brookfield

KOLKATA/MUMBAI: The assets sale deal between Hotel Leelaventure and private equity major Brookfield faced new hurdles on Wednesday as markets regulator Sebi halted the transaction over allegations of oppression of minority shareholders’ rights.

Additionally, government-run life insurance major LIC, which holds 2.4% in the hospitality chain, joined ITC in expressing its objections to the planned transfer of the properties.

The developments came even as the Mumbai bench of the National Company Law Tribunal (NCLT) asked Hotel Leela to respond to ITC’s allegations relating to oppression of minority shareholders’ rights and mismanagement by the promoters of the hospitality chain while executing the deal with the Canada-based private equity major, worth Rs 3,950 crore.

The NCLT has given Hotel Leela’s management two weeks to respond to ITC, after which the tobacco-to-hospitality major will have to respond to the hotel chain’s replies. The next hearing in the case is expected to be in June this year, sources said.

A day earlier on Tuesday, ITC had filed a petition in NCLT-Mumbai, alleging oppression of shareholders’ rights and mismanagement by the promoters. ITC had also prayed for an urgent hearing in the matter, which was held the next day on Wednesday. ITC holds nearly 8% in the hotel chain, which plans to transfer some of its prized properties including in Delhi, Udaipur, Chennai and Bengaluru, and one of its subsidiaries.

In its letter to Hotel Leela, Sebi said that it had received two complaints against the company’s deal with Brookfield — one from ITC and another from LIC, both shareholders of the company. The representations and allegations against Hotel Leela concerns the interest of the investors in securities market, Sebi said in its letter. The allegations may attract charges of violation of Sebi’s rules and regulations and other provisions of securities law. Hence, the regulator asked the hotel chain “to ensure that none of the transactions proposed in the postal ballot dated March 18 are acted upon till further directions from Sebi”.

In its letter to the shareholders, Hotel Leela had given details of its proposed deal with Brookfield and had informed its shareholders, among other things, that if they wished to, they could inspect all the documents relating to the deal. However, ITC alleged in its petition that when its officials went to inspect the papers relating to the deal, Hotel Leela withheld the valuation report of the properties it intends to sell to the PE major.

In the petition, ITC has said that in January 2019, Hotel Leela went into insolvency under the Insolvency and Bankruptcy Code (IBC). Before that, in September 2017, JM Financial Asset Reconstruction Co (ARC) had come in as a 26% shareholder by converting its debt into equity. Subsequent to the debt-equity conversion, ITC’s shareholding in Hotel Leela fell to 7.9% from 11.8% earlier.

The Kolkata-based company said in its petition that since the entry of JM Financial ARC in the hospitality company, the Nair family — the promoters of the hotel chain — and JM Financial ARC have been ‘acting in concert’, meaning taking decisions in conjunction with each other, which would benefit them at the expense of other shareholders.

On Wednesday, Hotel Leela shares on the BSE closed 4.4% up at Rs 11.