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Balaji to spin off Chennai hotel into separate firm 

Padmaja Shastri  
Chennai, April 9: The Chennai-based Balaji Hotels and Enterprises Ltd is planning to hive-off its hotel project in the city - The Oberoi, Chennai - into a separate company.

The new company - Magunta Hotels Ltd - has already been incorporated. The company is scouting for joint venture partners to pick up equity stake in the new venture. The company may even consider giving the equity partner a majority stake in the new venture if the compensation is attractive, said a senior official of Balaji Hotels. According to the official, the joint venture partner would be finalised by June this year and the demerger process completed soon thereafter. The capital structure of the new company will be formalised after discussions with the incumbent joint venture partner, he said.

The company is currently in talks with leading national and international hotel chains including the ITC hotels (Welcomgroup), Asian Hotels (Hyatt Regency), Indian Hotels (Taj group) and the Hilton. East India Hotels (The Oberoi group), with whom the company has a management-cum-franchise contract for 25 years, are also in the fray. The offer made by them early this year for a 30 per cent stake in the company was not acceptable to Balaji Hotels, according to industry sources.

Apart from hotel chains, the company is also talking to foreign financial institutions. If a non-hotel company takes equity in the company, the Oberois would continue to manage the hotel, said company sources. However, if the best offer comes from a hotel company, its anybody's guess as to what will happen if the Oberois fail to match that offer. However, as per the contract they have with the company, the Oberois have the first right of refusal, they added.

The 405-room five-star delux hotel, built-in the heart of the city, is in the final stages of completion. To complete the project, the company needs an additional funds to the tune of Rs 50 crore, over the initial outlay of Rs 290 crore for the hotel.

The cost escalation is attributed to the time-overrun because of construction problems and technological and other upgradations like fibre-optic cabling and the glass facade that cost Rs 10 crore, which were not originally accounted for in the project.

The commercial complex also needs another Rs 20 crore for completion. The hotel was funded with loans of Rs 197 crore and Rs 39 crore of internal accruals and Rs 54 crore of promoters funds.

However, whether the commercial complex will be a part of the new company will depend on the decision of the incumbent joint venture partner. If it decides against it, then the commercial complex would be absorbed into the Balaji Hotels, said company sources.

The 18-storeyed hotel has about two lakh sq ft of commercial complex, spread over three floors. The hotel will initially be soft launched with 150 to 200 rooms in April 2001, said a company official. The remaining rooms would be opened in stages, by the end of the year, he said.

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