The New Delhi Municipal Council’s ambitious plan to auction the Taj Mansingh Hotel has almost drawn a blank, with only Tata group-owned Indian Hotels Company (IHCL), the current operator, bidding for the property. The NDMC will now have to conduct a fresh round of auction for the luxury hotel, thereby delaying the process by at least several months.
Thursday was the last day for submission of bids for the Taj Mansingh as well as two other hotels in the capital —the Connaught and Hotel Asian International — built on NDMC land. In contrast to the Taj, the two lesser-known hotels have got three bidders each, allowing the auction process to move forward.
A new auction date will be decided for the Taj Mansingh (as the hotel is widely known, based on its Mansingh Road address), an official said. The tender rules said the bid process would be annulled in case there were less than three bidders. An official at the NDMC who is part of the tender process did not respond to calls. SBI Capital Markets is the transaction advisor to the auction.
The cold response from the hotel industry was unexpected, especially at a time when the sector is seeing an uptrend. Representatives of hotel companies
said they were not enthused with the financial terms and certain conditions of the tender. In spite of a relaxation in certain conditions in the second tender floated by the NDMC in April, a number of hotel companies
failed to qualify. Some said the responses to queries raised by prospective bidders in a pre-bid meeting were not satisfactorily answered.
One of the conditions that put off companies
was that if a bidder failed to meet the eligibility conditions specified in the tender documents, the security amount (Rs 250 million) was to be kept by the NDMC as ‘liquidity damages’. The first tender was floated by the NDMC in December last year and the auction was supposed to be held on January 30, 2018.
This date was postponed multiple times after prospective bidders raised several queries and finally the tender lapsed. Companies said the tender conditions were too ‘restrictive’. The first tender did not allow a cross-holding of five per cent or more between two bidders. It said a bidder must own assets as well as a brand which is not the usual practice in the hotel industry. These were relaxed in the second tender.
Some companies also said the financial demands of NDMC from the winner was on the higher side. It did not change in the second tender. The next operator of this property will have to assure a minimum revenue share of 17.25 per cent and a minimum guarantee fee of Rs 29.64 million per month, with a clause for escalation, according to current terms. There is also an upfront non-refundable fee of Rs 533 million. NDMC is seeking a performance security of Rs 355 million as well. The lease period for the property was kept at 33 years, the same duration awarded to IHCL over four decades ago, in 1976.
An expert specialising in hotel industry related transactions said that the auction process of Taj Mansingh was being conducted with a ‘landlord’ attitude. “There is no rent free period for the winner. The winning firm will have to start paying money to NDMC from day one even though the actual hotel operation and income may take multiple months to begin”, he said. The hotel needs a complete renovation and it may take more than a year during which the regular guests of Taj Mansingh would have to be shifted to other hotels, said an industry executive. “You cannot re-open it and expect a tariff of Rs 10,000 per room from first month.’’
Indian Hotels had signed a lease agreement with the NDMC in 1976 and the 292-room hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When NDMC decided to auction the property, Indian Hotels challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.