GOVT PLANS TO LEASE ASHOK HOTEL BY DECEMBER

Centre working on an open-ended lease pact to pave way for sale of the property at the end of the agreement period

The government is planning to find an operator for The Ashok Hotel in Delhi by December-end. State-owned India Tourism Development Corp currently runs the hotel. The Department of Investment and Public Asset Management and the tourism ministry are working on a deal structure. The lease is being structured in an open manner, suggesting that the entity operating the hotel might have the option of buying it outright at the end of the lease period.

The government is looking to find a prospective operator for The Ashok Hotel, New Delhi, by December. State-owned Indian Tourism Development Corporation (ITDC) currently runs the hotel.

The department of investment and public asset management and the tourism ministry are working on a deal structure, which would be placed before the Cabinet Committee on Economic Affairs (CCEA).

Additionally, the lease is being structured in an open manner, suggesting that the entity operating the hotel may have the option of buying it outright at the end of the lease period, for a hefty price though.

The main reason for the Centre’s push is that it does not expect major strategic sales to go through in the last quarter of 2018-19, just ahead of the 2019 general elections when the code of conduct is likely to be in force, according to ministry officials.

“The property has brand visibility as well as monetary potential. It has to go to somebody who creates immense value. Hence, the deal has to be structured properly and carefully. Hence, we are working on it,” one of the officials said.

The lease structure will be an open one, he added. In an open-end lease, the lessee has to make a payment at the end of the agreement period. This amounts to the difference between the residual and fair market value of the asset, with an intention of buying the asset.

A closed-end lease, on the other hand, puts no obligation on the lessee to buy the leased property at the end of the agreement period.

The plan to lease out the iconic property, located a stone’s throw from the Prime Minister’s official residence in the heart of the city, was proposed by the NITI Aayog.

Officials are deciding on the lease period, which the Niti Aayog had proposed as 60 years.

With the property being so close to the Prime Minister’s residence, there are security concerns as well. The government is also looking to hire an advisor to help it frame a lease structure.

With Air India’s stake sale plan failing to take off, the Centre is shoring up various alternatives to meet its disinvestment target of ~800 billion for 2018-19.

A part of these, proceeds will come from ITDC’s other properties, including the ones in Patna, Ranchi and Puducherry.