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Wednesday, July 20, 2011

Oberoi Realty takes Centaur hotel litigation to high court

Having lost the arbitration proceedings related to acquisition of Centaur hotel at Juhu (Mumbai), Oberoi Realty managing director Vikas Oberoi is set to challenge the decision in high court.

The Oberoi Realty management in a company announcement filed with the Bombay Stock Exchange (BSE) said that Siddhivinayak Realties P Ltd (SRPL) has filed an arbitration petition in the high court of Jurisdication at Bombay, seeking an injuction against V Hotels. Simultaneously, the joint venture firm is reviewing the matter and will pursue legal recourse / remedies as may be available, in consultation with its legal counsel.

A company spokesperson, when contacted, refrained to comment on the subject.

Oberoi Realty's wholly owned subsidiary company Oberoi Construction Ltd is a 50% joint venture partner in SRPL. Among other shareholders in the company include Shahid Balwa (promoter of 2G scam-tainted realty company DB Realty Ltd) and Vinod Goenka (promoter and managing director of DB Realty Ltd) who own 49.5% in the company.

Industry experts are of the opinion that Oberoi Realty will not give up on this asset so easily and that the realtor will pursue the matter irrespective of how much it takes the company to bring this asset into their portfolio. “The site is a very strategic in terms of location and knowing Vikas' approach to business, he would never let go off the opportunity to own this project. I think they would probably keep the site under litigation for as long as possible thus refraining the current asset owning company (V Hotels) from undertaking any development activity,” said an source familiar with the development.

In March 2005, SRPL had entered into an agreement with V Hotels Ltd (which acquired the said property for Rs 153 crore as part of BJP government's disinvestment process) for purchase of the Centaur hotel for Rs 387.5 crore. Citing irregularities in the deal, a CBI inquiry was initiated and the deal eventually went under arbitration following a dispute between the parties.

The latest arbitration ruling has terminated the agreement between V Hotels and SRPL directing the asset owning company to refund Rs 73 crore against around Rs 75 crore paid by SRPL till date. The refund will have to be made by V Hotels within 90 days of the ruiling i.e. by October 12, 2011.

Analysts tracking Oberoi Realty have valued the company's 50% stake in the project at 1x book value of investment. “We see minimal impact of the ruling on our valuation and maintain 'buy' on the stock with a target price of Rs 288 per share,” said Aashiesh Agarwaal and Adhidev Chattopadhyay, analysts with Edelweiss Capital in their report.

On Tuesday, the Oberoi Realty stock had reached an intra-day high of Rs 245 and closed at Rs 234.5 – down 0.21% as against the previous day's closing price of Rs 235.

Centaur hotel Juhu is owned by V Hotels wherein BSE-listed Tulip Star Hotels Ltd holds 50% stake and the balance is owned by Tulip Hotels Pvt Ltd. The latter (Tulip Hotels) is promoted by Ajit Baburao Kerkar the erstwhile chairman and managing director of The Indian Hotels Co Ltd (IHCL) popularly known as Taj Group of hotels.

BSE-listed travel company Cox & Kings Ltd with Peter Kerkar (Ajit Kerkar's son) at the helm of the affairs owns 32% stake in Tulip Star Hotels Ltd (the listed entity) in addition to a Rs 18 crore exposrue in the form of fully convertible deventures (FCD) – a type of debt security convertible into equity shares at the issuer's notice.

When inquired about the impact, this development would have on C&K's business, the company spokesperson said that the topic under discussion has nothing to do with the travel company and that it will have to be sorted out between V Hotels and SRPL.

By the end of trading session on Tuesday, shares of Cox & Kings had reached an intra-day high of Rs 221.5 closing at Rs 205.95 as against its previous close of Rs 192.9 – up by 6.77%.

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