Hotel Leelaventure’s shareholders have overwhelmingly backed the proposal to sell key hotel assets to Brookfield Asset Management though the transaction cannot go ahead till the capital markets watchdog completes its investigation into complaints made by key Leela shareholders.
Nearly 86 per cent of all shareholders voted in favour of the resolution with institutional and non-institutional shareholders supporting it by over 70 per cent, a Leela notice to the shareholders showed.
The results were released to the public after Securities and Exchange Board of India allowed Leelaventure to do so. The market regulator had asked the firm and Brookfield to hold off on proceeding with the transaction earlier in the week after two key shareholders ITCNSE 0.13 % and LIC complained of some irregularities.
While all the promoters polled in favour of the deal, 74.87 per cent of public institutional investors and 74.9 per cent of non-institutional public investors who cast their votes also backed the move. It is not known how LIC and ITC voted. Voting through postal ballot began on March 26 and ended on April 24.
Meanwhile, it has emerged that ITC which in an unexpected move approached the National Company Law Tribunal earlier this week challenging the deal, had abstained from voting in 2017 when JM Financial Asset Reconstruction Company (JMFARC) moved a special resolution to convert its debt into equity.
People close to the development said that the cigarettes-to-hotels major also did not engage in talks to buy the assets when approached by lenders. ITC did not respond to an email seeking comment till press time Friday.
ITC which holds a 7.92 per cent stake in Leelaventure and another minority investor, Life Insurance Corporation of India, have also approached Sebi, complaining that the deal violated rules on related-party transaction. They also alleged “oppression” of minority shareholder interest and “mismanagement” by the promoters and JMFARC that holds a 26 per cent stake in the company after the conversion of debt into equity.
On September 3, 2018, ET reported that Brookfield and Leelaventure were in advanced talks for a deal.
“They are talking about JM Financial ARC holding 26 per cent shares which diluted their stake but that 26 per cent did not come out of thin air. As per the 2013 corporate debt restructuring documentation, the lenders have the right to convert their loan into equity which was approved by the shareholders. They didn’t object then to the lender’s right to convert. It has been two years,” said a banker. “In 2017, JMFARC moved a special resolution for the shareholders that it was converting the loan into unsecured equity of 26 per cent. ITC abstained from voting in that resolution. If they had said negative vote at least they had some grounds to complain now. they don’t have a ground,” he added.
In its petition to the NCLT, ITC alleged that the conversion of debt into equity by JMFARC had diluted its stake to 7.92 per cent from 11.78 per cent.
In 2014, Leelaventure’s lenders who held 95.6 per cent of its debt had transferred the loans to JMFARC. One lender, which accounted for about 1 per cent of the debt, assigned that to Phoenix ARC.
In June last year, Leelaventure’s board approved an enabling provision to issue up to 125 crore equity shares in one or more tranches to JMFARC, which currently holds most of its debt. The potential share issue could have hiked the ARC’s stake in Leelaventure to 75 per cent from the current 26 per cent, but the proposal was not approved during the company’s annual general meeting held on August 20.
Even if the Leela-Brookfield deal goes through, JMFARC and other 14 lenders will have to give up on some of the money outstanding, experts said.
In its petition to the NCLT, ITC alleged JMFARC had moved a petition in the tribunal in January this year against Leelaventure with an intent to pressurise the promoters to dispose of their business to Brookfield. Brookfield has filed an application in the NCLT to make it a party to ITC’s petition, ET reported on Friday.
