Restrictive auction

Bid terms for Taj Mansingh must be modified

New Delhi Municipal Council (NDMC), which governs the civic functioning of more than 40 sq km of the capital, has come up with tough eligibility requirements for participating in the proposed auction for the Taj Mansingh hotel after expiry of its lease term. Strict eligibility terms are fine as long as they are seen to be fair and not weighted in favour of any particular hotel chain. But there are two “restrictive’’ issues here. The first is that only a bidder with a five-star hotel brand as well as at least 500 rooms across three properties is eligible to participate in the auction of the luxury property, which is now operated by the Indian Hotels Company of the Tata group. In other words, any entity that does not own a five-star hotel even if it manages and operates such properties will be turned down. That will eliminate almost every marquee international hotel brand from bidding as they follow the manage-and-operate model rather than the ownership model. Increasingly in the hotel business, ownership is with investors while brands are distinct. The NDMC and its auction advisor SBI Caps should have been mindful of the global trends. Several top local hotel operators will also be out of the race as bidders should have annual revenue of over ~4 billion.

The second major hurdle is related to cross-holding. That is, two bidders cannot have a cross-holding beyond 5 per cent between them. The rationale is difficult to understand. For example, since ITC Hotels owns a 14.98 per cent stake in Oberoi Hotels, only one of the two will be eligible to bid, going by the current conditions. Even as there are cross-holding checks across operations in many sensitive sectors such as telecom and media, such a clause in an auction appears flawed. The terms are illogical, too, as a minimum of three bidders are required to qualify for the first round of bidding, which means the auction cannot take place unless the rules are modified. The idea of bidding is to open up a resource to multiple parties for maximising revenue rather than limiting the competition. That should be reason enough for the NDMC to review the auction conditions. There is another hurdle as well; the conditions say that no structural change can be made to the property, thereby hindering the process of fire and safety approvals if a new operator takes charge.

It is a welcome sign that the NDMC has decided to meet again to look into the grievances of potential bidders. But that also means a delay of several months in holding the auction if the terms and conditions of bidding undergo major alterations. Not only will the bid documents have to be redrawn, hospitality chains and other investors, too, have to be given time to readjust their bidding positions. Any delay implies a prized property like Taj Mansingh will continue to be run on a day-to-day basis without any long-term focus till the auction is conducted. That is neither in the interest of the civic body as it is losing revenue each passing day, nor of the guests who have trust in this 294-room luxury hotel. Better due diligence by the NDMC, which is leasing Taj Mansingh for a 33-year period through a process of bidding approved by the Supreme Court, and its auction managers could have prevented the current mess.