The diversified Tata Group, which has been on an expansion and acquisition drive over the past decade, seems to have embarked on a strategy of selling non-core assets to streamline operations under chairman Cyrus Mistry.
Indian Hotels Co Ltd (IHCL) recently announced that its subsidiary, Samsara Properties, was selling The Blue Hotel in Sydney to Australia Hotels and Properties Ltd for A$32 million. The deal is expected to be completed by October 31.
“The divestment is being undertaken to focus in markets, which are core to Taj Group’s operations and create liquidity to fund the company’s short-to-medium term requirements,” the company, which operates the Taj Mahal Palace, Gateway and Vivanta Hotels, said.
Indian Hotels’ consolidated debt stood at Rs 4,250 crore as on March 31, 2014. While the company continues to add new hotels, most of the expansion is now via management contracts and joint ventures, instead of just own greenfield projects.
IHCL is not alone. Several other Tata Group companies are doing the same (see graphic).
Tata Power, for instance, which has been “facing under-recovery and cash flow challenges due to its Mundra ultra-mega power project,” has signed an option agreement to sell 5% stake in PT Kaltim Prima Coal (KPC) for $250 million to an arm of Indonesia’s Bakrie Group to get additional cash flow and pare debt. The company has also signed an option agreement to sell 30% stake in power infrastructure companies, which are associated with KPC, to the Bakrie Group arm.
“The option to partially sell KPC and its related power company has the potential to provide the company the flexibility to raise additional funds to meet the current challenges,” said Anil Sardana, MD, Tata Power.
Tata Steel, which took over UK’s Corus back in 2007, is also battling huge debts and a slowdown in Europe. On Friday, the company, with an estimated debt of Rs 70,000 crore, announced the successful completion of a $1.5-billion bond offering in international markets.
“This bond issuance forms part of the company’s long-term financing strategy to raise capital globally,” said Koushik Chatterjee, group executive director.
“The company has indicated that disposal of non-core assets remains a priority to reduce lazy capital. The disposal of the Dhamra Port stake for Rs 2,750 crore and land in Borivli, Mumbai for Rs 1,150 crore are steps in this direction,” said Nitesh Jain of Axis Capital.