The Securities and Exchange Board of India (SEBI) has ordered Hotel Leelaventure Ltd to seek shareholder approval for a multi-million-dollar deal with Brookfield Asset Management Inc. afresh after making additional disclosures.
The capital markets regulator said in an order that it may also initiate adjudication proceedings against JM Financial Asset Reconstruction Company for violating its takeover norms while buying a 26% stake in debt-laden Hotel Leelaventure by converting loans into equity in 2017.
The order means Brookfield will have to wait more to find out whether it can go ahead with a deal that would establish its presence in India’s luxury hospitality sector. The Canadian investor had inked a pact in March to acquire four Leela hotels and hospitality business for Rs 3,950 crore ($576 million then).
In April, cigarette-to-hotels company ITC Ltd approached SEBI as well as the National Company Law Tribunal (NCLT) against the deal. State-run Life Insurance Corporation also challenged the deal. Both ITC and LIC, which together own a stake of about 10% in Hotel Leelaventure, voted against the deal. SEBI put the deal on hold in April.
ITC had argued that the proposed deal with Brookfield violated provisions of related-party transactions and that it was is skewed in favour of the promoters and JM Financial ARC and hurt other shareholders, including itself.
In its order, issued on Tuesday, SEBI said the deal doesn’t violate norms for related-party transactions. But it said that Hotel Leelaventure will have to provide details of all transactions and the valuation reports to its shareholders before they vote on the deal afresh.
“The shareholders should have been allowed to inspect all the valuation reports in respect of the proposed transaction (with Brookfield) for taking an informed decision,” SEBI said.
The regulator also said it may take action against JM Financial ARC for failing to comply with the provisions of its takeover regulations when it acquired a stake in the hospitality company; it currently holds a 26% stake.
ITC had called for cancelling the allotment of the 26% stake in Hotel Leelaventure to JM Financial ARC.
In its order, SEBI said the conversion of debt into equity by JM Financial ARC is a “technical violation” of the regulator’s takeover regulations. This is because it was not part of either a corporate debt restructuring package or under the SARFAESI Act, a 2002 law that gives lenders greater powers to recover loans.
SEBI, however, added that JM Financial’s transaction was “fit for exemption” under the takeover rules because it was an action on behalf of the lenders. Still, the asset reconstruction company should have taken SEBI approval for the exemption from making the mandatory open offer to public shareholders, the regulator said.
