Hotel Leelaventure-Brookfield deal: Sebi orders further scrutiny

Hotel Leelaventure
The Securities and Exchange Board of India (Sebi), on Tuesday, directed Hotel Leelaventure (Leela) to provide more details to shareholders, and seek fresh approvals, before proceeding with the sale of assets to Canadian investment fund Brookfield Asset Management.

In April, the board of debt-ridden Leela had floated an ordinary resolution for sale of assets — which included hotel properties in New Delhi, Bengaluru, Udaipur and Chennai — to Brookfield for Rs 3,950 crore.

Two minority shareholders of Leela — ITC and Life Insurance Corporation (LIC) — had opposed the deal, stating that it violated provisions of related party transactions (RPT) and should be only cleared through a special resolution.

ITC had also moved the National Company Law Tribunal (NCLT), alleging oppression and mismanagement by Leela and its lender JM Financial ARC (JM ARC).

Following the complaints, Sebi launched an investigation into the deal and ordered Leela not to proceed with the postal ballot.

In a 33-page order on Tuesday, the markets regulator directed Leela to provide all relevant details for each of the sale transactions, including asset sale and additional intellectual property (IP), with “specific information identifying the transactions between the company and Brookfield, and between the promoters and Brookfield, including the amounts involved therein under separate tables with the split consideration for each head.”

Leela will also have to provide the valuation methodology used. Sebi has held that the transaction will have to be put to vote, afresh. The regulator held that the sale of assets and IP, except the deal involving transfer of ‘Jamavar’ trademark, didn’t amount to RPT. The regulator added that the ‘Jamavar’ transaction would require the approval of ‘majority of minority’ shareholders.

The regulator also directed Leela to make all material disclosures — including the litigation relating to the claim of the Airports Authority of India (AAI) pertaining to the Leela Hotel, Mumbai — in the Postal Ballot Notice and in the financial statements in the Annual Report.

It was alleged that Leela had made wrong disclosures to AAI regarding its liability.

Sebi has also said it could take action against JMF ARC for its failure to ensure compliance with the Takeover Regulations. “As regards the conversion of debt into equity by JMF ARC, it is noted that the same amounts to a technical violation of the Takeover Regulations, 2011, by not having sought an exemption from Sebi,” the order stated.

In February 2012, Leela’s board had opted to restructure its debt under the Corporate Debt Restructuring (CDR) mechanism. Later, 14 out of 17 lenders of Leela had assigned Rs 4,150 crore (95.6 per cent) of the debt to JMF ARC, in June 2014.