ITC Investors To Get 1 Share Of Hotels Unit For Every 10 Held In Parent

ITC Ltd. shareholders will get one share in its hotels unit for every 10 held in the cigarettes-to-staples company.

The share entitlement ratio has been determined on the basis of the share capital or the number of shares of the two companies and has no bearing on the market capitalisation of ITC Hotels, the company said in an exchange filing on Monday.

The board of ITC approved the scheme of arrangement involving the demerger of its hospitality business. As per the scheme, the shareholders of ITC would directly hold about 60% in ITC Hotels, proportionate to their stake in ITC, while the balance stake of 40% in the new entity will remain with ITC. No cash consideration is payable under the demerger scheme.

The hotels business will be given a license to use ‘ITC’ brand, the company said. The turnover of the spun-off unit for the year ended March 31, 2023, was Rs 2,573.2 crore, representing 3.7% of the company standalone top line. The indicative timeline for listing ITC Hotels is about 15 months.

The board also approved the acquisition of shares of two hotel companies.

ITC will buy 25% stake in Maharaja Heritage from Russel Credit Ltd., and 45.36% stake in International Travel House Ltd.

ITC revied the plan to spin off its hotel business on to unlock value as the hospitality industry recovers from the disruptions caused by the Covid-19 pandemic. Sanjiv Puri, chairman and managing director at the cigarettes-to-staples maker, had said that since there are indications of the industry being on a positive trajectory, the demerger was back on the table.

According to him, ITC's hotels business has matured over the years and is poised to chart its own growth path and operate as a separate listed entity in the fast-growing hospitality industry while continuing to leverage ITC’s institutional strengths, strong brand equity and goodwill.

The demerger is expected to enable the hotels unit to raise capital from equity and debt markets towards funding its growth requirements and attract investors and strategic partners whose investment strategies and risk profiles are aligned with the hospitality industry.

"The increasing aspirations of society, India's solid economic base, government focus on travel and tourism, infrastructure development, and fast-paced digitalisation offer great prospects for the hotel business' future growth," the Kolkata-based conglomerate said in an investor presentation.

Employees engaged in or related to the hotels business would be transferred to ITC Hotels, but the company indicated that the employment terms would be no less favourable than their existing terms of employment with the company. However, financial investments like East India Hotels Ltd and Hotel Leelaventure Ltd as well as non-operational entities such as Logix Developers, would not be transferred, it said.

Analysts have given a thumbs-up to the spin-off plan, saying that ITC's hotel business demerger will improve the return on capital.