Tatas are capitalising on their brand equity with the general public to help them

RELATED ARTICLES Tatas in 50:50 venture with Starbucks DoT seeks Tatas shareholding record in Idea

raise public deposits in a big way, to fund their Rs 680 crore deal to acquire the controlling stake in Bandra’s strategically situated Sea Rock hotel.

“We have raised Rs 360 crore as fixed deposits (FD) from the public which in addition to the internal accruals and other surplus liquidity that we have, were used to close the transaction for acquiring a controlling stake in ELEL, which in turn holds the long term sub-lease for the land on which the Sea Rock Hotel is located,” said Anil P Goel executive director — finance, Indian Hotels Company.

As a Tata group company depositors are willing to park their money with the Taj, which is also a well-recognised brand in India. The Taj FD scheme involves a minimum investment of Rs 25,000 and in multiples of Rs 5,000 thereafter. The company offers an interest of 9.5 per cent per annum for a two-year deposit and 10 per cent per annum for a three-year deposit. The company also promises to pay an additional 0.25 per cent above these interest rates for senior citizens, employees and shareholders.

A senior IHCL official told Financial Chronicle that the fixed deposits scheme has now been closed as the company has reached the limit for accepting fixed deposits as provided under the Companies Act 1956.

To complete the transaction with the Claridges group for the iconic hotel property, IHCL also used up around Rs 105.5 crore of balance funds left over from its rights issue that concluded in May 2008. This money was invested in mutual funds till the end of the March 2009 quarter but has since been deployed towards the transaction.

As a result in the quarter ended June 2009 the company’s interest costs rose by 60.27 per cent to Rs 37.6 crore. “Our debt levels at the end of June 2009 stood at around Rs 1,800 crore (up around Rs 600 crore on a year on year basis). Also last year we had surplus cash which earned us interest income whereas now we don’t have that surplus liquidity,” said Goel. IHCL saw its profit after interest but before exceptional items decimated from Rs 94.05 crore as of June 2008 to a loss of Rs 19.04 crore in the quarter ending June 2009.

To generate liquidity, the company also sold its shareholding in India’s largest listed software services company Tata Consultancy Services for a profit of Rs 38.77 crore. As of end March 2009, IHCL held 6.14 lakh shares of TCS, which were valued in its books of account at just Rs 5 lakh.

IHCL, which has invited three to four international architects to make presentations to the board of directors on how to synergise and develop its Taj Land’s End property, and Sea Rock acquisition may well have to raise fresh project debt. This fresh debt will be used, to fund its plans of developing the site as an integrated hospitality development comprising of hotel rooms, a world class large convention centre that can rival others in South East Asia and retail and commercial operations. To do this, the Taj plans to demolish the existing Sea Rock hotel structure and create a property that maximises its waterfront advantage.