SEBI Seeks More Disclosures From Hotel Leelaventure On Asset Sale To Brookfield

The market regulator sought more disclosures from Hotel Leelaventure Ltd. before it seeks shareholder approval for sale of assets to Brookfield Asset Management, delaying the deal that would have helped the hotel company pare debt.

The proposed sale includes four hotels in Bengaluru, Chennai, Delhi and Udaipur and a property in Agra. The transaction also includes all intellectual property owned by the company.

Securities and Exchange Board of India had on April 26 put the Rs 3,800-crore deal on hold till it completed a probe into minority investors ITC Ltd. and Life Insurance Corporation’s allegation that the asset sales violated regulations including related-party disclosures and takeover code.

SEBI, in an order uploaded on its website, said it may separately initiate proceedings against JM Financial Asset Reconstruction Company, which holds 26 percent stake in Hotel Leelaventure after conversion of debt.

This is what the regulator said regarding allegations levelled by minority shareholders:

Related-Party Transactions

Allegation: ITC and LIC had alleged related-party transactions in the proposed sale of assets to Brookfield. They alleged that the company failed to disclose that if promoters—a reference to JM Financial ARC—voted in the board resolution clearing the deal.

Finding: SEBI, however, found that JM Financial ARC could not be treated as a related party under the Companies Act, 2013 or the SEBI regulations. It said the stressed asset buyer did not have any interest in the transaction other than using the proceeds for debt repayment.

Disclosures To Shareholders

Allegation: Denial of inspection of documents by Hotel Leelaventure, and failure to provide valuation and other reports along with the March 18, 2019 notice for postal ballot.

Finding: The regulator found there was a need for additional disclosures in the notices to help shareholders make an informed judgment.

Violation Of Takeover Code

Allegation: JM Financial ARC’s conversion of debt 26 percent holding in October 2017 amounted to breach of SEBI takeover regulations as it didn’t seek an exemption from open offer.

The Takeover Code makes it mandatory for a shareholder with over 25 percent stake to make an open offer to public shareholders to acquire up to 26 percent more.

Finding: SEBI concluded that the asset reconstruction company violated the regulations and must have sought an exemption from open offer before converting debt into equity.

Wrong Disclosures

Allegation: Hotel Leela venture failed to disclose the liability owed to the Airports Authority of India in its annual report.

Finding: The company had said disclosures were not made as the matter with AAI was contentious. SEBI disagreed and directed Hotel Leelaventure to ensure adequate disclosures to shareholders.

Besides these, the regulator also sought other information and disclosures from the hotel company in its postal ballot notice:

• Details of transactions between Hotel Leelaventure, Brookfield and the promoters, including how the proceeds will be split between the parties.
• Details of valuation and the valuation method adopted.
• Asset sale transaction along with transfer of intellectual property shall be put for vote afresh.
• Transfer of the “Jamavar” trademark would require separate vote of shareholders if the value of the trademark exceeded 10 percent of the turnover of Hotel Leelaventure.
• All material disclosures relating to litigation with the Airport Authority of India must be made in the financial statements and annual report.

A separate case about the deal stripping the company of nearly all its assets is pending in the National Company Law Tribunal.