Aniruddha JainRecently, Delta Corp Limited announced the separation of its Hospitality business into a separate company through a demerger.
Delta Corp Limited (“Demerged Company”) is the only listed company engaged in the gaming (live, electronic, and online) and hospitality space in India. Delta Corp, along with its subsidiaries, owns and operates the ‘Deltin’ brand of luxury casinos in the states of Goa and Sikkim. The Company also owns and operates ‘Deltin Suites’, an all-suite casino-hotel in Goa and ‘The Deltin’, a five-star hotel and integrated resort in Daman. The company has ventured into the fast-growing online space with the online poker site ‘Adda52.com’; and the online rummy site ‘Adda52rummy.com’. The equity shares of Delta Corp Limited are listed on nationwide bourses.
Delta Penland Private Limited (“Resulting Company”) is a wholly owned subsidiary of Delta Corp Limited incorporated to facilitate the proposed demerger.
The proposed transaction:
Composite Scheme of Arrangement between Delta Corp Limited and Delta Penland Private Limited and their respective shareholders and creditors under Sections 230 to 232 read with Section 66 and other applicable provisions of the Companies Act, 2013 (“Scheme”). The proposed scheme inter-alia provides for the demerger of the Hospitality and Real Estate business from the Demerged Company to the Resulting Company.
“Hospitality and Real Estate Business” means the business of the Demerged Company engaged in providing hospitality services and development and dealing in real estate properties, including associated assets and liabilities; The Hospitality and Real Estate business inter alia includes Deltin Suites, a 106-room, all-suite hotel with a casino located in Goa; The Deltin, a 176-room five-star deluxe property and the largest integrated resort spread over 10 acres located in Daman; Marvel Resorts, a proposed approx. 440 room hotel spread over 8,000 square metres in Goa currently under advanced stage of construction; and land situated in Dhargalim, Goa, where it is proposed to develop an integrated resort with a water park spread over 88 acres. The Company also holds investments in hospitality and real estate companies.
The appointed date for the proposed demerger will be the Effective Date. Further, the demerger will create the mirror-imaged shareholding pattern for the resulting company. Based on the capital requirement, the management has decided for 1 (One) fully paid-up equity share of the Resulting Company having a face value of INR 1 (Rupee One) each for every 1 (One) fully paid-up equity share of INR 1 (Rupee One) each of the Demerged Company.
The proposed reorganisation pursuant to this Scheme is expected, inter alia, to result in the following benefits:
a) unlocking of value and create enhanced value for shareholders and allow a focused strategy in operations;
b) provide better flexibility in accessing capital and attract business specific partners and investors;
c) focused management approach for pursuing revenue growth and expansion
opportunities in the respective business verticals; and
d) de-risking the businesses for the stakeholders of the Demerged Company through an independent market driven valuation of their shares in the Resulting Company which will be listed pursuant to the Scheme.
Other specific provisions envisaged in the scheme:
Due to various inter-dependencies between the hotel business and casino business, several agreements are being decided between demerged & resulting company through schemes.
- Resulting Company shall provide management services to the Demerged Company, on arms-length basis, in connection with the property of the Demerged Company located at Daman namely, ‘The Deltin’. Thus, property shall continue to be owned by the demerged company.
- Resulting Company shall affect the lease of property currently being used as a casino located in Goa, namely, ‘Deltin Suites’ in favour of the Demerged Company.
- The Resulting Company shall affect the rent of rooms of property namely, ‘Deltin Suites’ located in Goa, in favour of the Demerged Company.
These arrangements are integral part of the scheme and shall protect both demerged & resulting company in future. This provision is inserted keeping in mind the inter-dependencies /offers made by the company to players visiting Casino etc.
Financials
Clearly, the Casino business is the cash cow for Delta Corp Limited and has been generating returns which are taking care of losses generated by Online gaming and hospitality business. Hospitality business, being owner of immovable properties have a heavy asset book and is dependent on Casino business.
Conclusion
It appears demerger is the first step towards diversifying the existing business. Last year, Delta Corp has decided to foray into real estate business. The move segregates its risky business from asset backed business. The various provisions for leasing and minimum room guarantee will provide continuous cash flow to the hospitality business however to develop its real estate, the resulting company will need to go for immediate funds raised. This will enable the resulting company to monetise its real estate holding.
