ITC Board approves hotel business demerger, listing in 15 months
ITC Ltd, a Kolkata-based conglomerate, is planning to publicly list its hotel business through a demerger process. This means that the hotel business, currently a part of ITC Ltd, will be separated into a distinct entity known as ITC Hotels Ltd, which will operate independently. The company aims to complete this demerger and have the hotel business listed on the stock exchange within the next 15 months.
In the demerger process, existing shareholders of ITC Ltd will receive equity shares in ITC Hotels Ltd. The distribution of these shares will be structured in a way that approximately 60% of the stake in ITC Hotels Ltd will be held by the current shareholders of ITC Ltd, based on their shareholding in the parent company. The remaining 40% of the stake in ITC Hotels Ltd will continue to be owned by ITC Ltd.
The demerger will take place by issuing new equity shares to ITC Ltd shareholders. Specifically, for every ten ordinary shares of ITC Ltd with a face value of Re 1 each that a shareholder holds, they will receive one equity share of Re 1 face value in ITC Hotels Ltd. This means that the ownership proportion in ITC Hotels Ltd will be directly tied to the shareholding an individual has in ITC Ltd.
Overall, this move signifies ITC Ltd’s intention to create a separate identity and listing for its hotel business, enabling it to raise capital independently and potentially unlocking value for its shareholders in both ITC Ltd and the new ITC Hotels Ltd entity.
ITC Ltd is looking to separate its hotel business through a demerger, with the goal of listing it as an independent entity known as ITC Hotels Ltd. This demerger process is expected to be completed within the next 15 months, approximately by November 2024.
Under this plan, existing ITC Ltd shareholders will receive shares in the new ITC Hotels Ltd, with around 60% ownership distributed proportionally based on their current ITC Ltd shareholding. The remaining 40% ownership in ITC Hotels Ltd will be retained by ITC Ltd.
Approval from various entities, including shareholders, creditors, regulatory authorities such as SEBI and NCLT, is required for this demerger to proceed. Despite the change in ownership structure, the economic benefits generated by the hotel business will continue to be held by ITC shareholders.
ITC Ltd’s decision to maintain a 40% stake in ITC Hotels Ltd post-demerger is driven by strategic considerations. This arrangement will enable ITC Hotels Ltd to operate independently while benefiting from ITC Ltd’s brand reputation and strengths. The timeline and ownership structure are aimed at providing stability, support, and growth opportunities to ITC Hotels Ltd, ensuring confidence among stakeholders like partners and employees.
In the process of demerger, various components of the hotel business will undergo transfer. This includes properties, assets, investments, employees, liabilities, and contractual obligations related to the hotel business. Additionally, intellectual property and trademarks exclusively utilized in the context of the hotel business will also be transferred.
As part of this transition, ITC Hotels will receive a license to utilize the ‘ITC’ name within its corporate identity, as well as some of the associated properties and brand names. This usage will be subject to standard conditions and practices.
The investments held in hospitality entities that are integral to the hotels business, such as Bay Islands Hotels Ltd, Fortune Park Hotels Ltd, Landbase India Ltd, Srinivasa Resorts Ltd, WelcomHotels Lanka Pvt Ltd, Gujarat Hotels Ltd, International Travel House Ltd, and Maharaja Heritage Resorts Ltd, will be shifted to become assets of ITC Hotels.
It’s important to highlight that investments held in EIH Ltd, HLV Ltd, and the non-operational Logix Developers Pvt Ltd will not be included in the assets being transferred as part of this demerger process, based on the information provided.
Moving forward, on July 24, ITC Ltd officially announced that its board had granted preliminary approval for the demerger of its hotels business. This demerger is planned to be executed through a scheme of arrangement. The decision to pursue this course of action was conveyed, with the final seal of approval expected to be stamped during the scheduled board meeting of the company, set to convene on August 14, 2023. This signifies a significant step in the company’s strategic evolution.
ITC Hotels, a prominent luxury hotel chain in India, was established in 1975. The chain encompasses 120 hotels and a total of 11,600 rooms across more than 70 locations. According to data from the Bombay Stock Exchange (BSE), the hotel business of ITC recorded a revenue of Rs 2,689.12 crore in the fiscal year ending on March 31, 2023, which marked a significant increase from Rs 1,347.66 crore in the previous fiscal year, FY22.
In the first quarter of the fiscal year ending in June 2023, ITC reported a consolidated net profit of Rs 5,180.12 crore, reflecting a growth of 16.08% compared to the same period in the previous year. This was revealed in a regulatory filing by the company, which further noted that the consolidated net profit for the corresponding period of the previous year was Rs 4,462.25 crore.
