NDMC, the capital’s civic body, looks set to take the auction of Delhi’s iconic luxury hotel Taj Mahal (popularly known as Taj Mansingh after the road on which it is located) next Friday after it received the minimum two bids for the asset. Besides Indian Hotels Company Ltd (IHCL), the current operator of the hotel, rival ITC has also submitted bids for the 292-room hotel. Thursday was the last date for submission of bids.
“Once NDMC evaluates the technical bids, it can hold the e-auction on September 28. Only two bids were received for the asset,” said an industry official. NDMC early this month decided to relax the conditions for the auction after two unsuccessful attempts. Based on the lukewarm response in previous two tenders, the council had brought down the minimum number of qualified technical bidders to two for a successful auction from three in the previous two tenders.
It had also relaxed some of the financial conditions of eligibility. The average revenue requirement from prospective bidders has been brought down. The three-year average revenue required was brought down to Rs 3.5 billion compared to Rs 4 billion previously. Bidders were allowed to include the financials of FY18 as well.
The lease period, which was 33 years in the first two tenders, was not changed. The bid security amount of Rs 250 million was also retained. NDMC did not change the financial expectations from the property. The next operator of this property will have to assure a minimum revenue share of 17.25 per cent and a minimum guarantee fee of Rs 29.64 million per month, with a clause for escalation. There is also an upfront non-refundable fee of Rs 533 million. NDMC is seeking a performance security of Rs 355 million as well. None of these were changed.
NDMC estimates that the bidder who emerges successful in the auction process will have to invest Rs 2.84 billion in refurbishing the 292-room hotel that has been operational since 1978. The winning firm will have to start paying money to NDMC from day one even though the actual hotel operation and income may take multiple months to begin. Indian Hotels, which has earned a profit from the property all these years, could be more aggressive in its bids.
Tata group-owned IHCL had signed a lease agreement with the NDMC in 1976 and the 292-room hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When NDMC decided to auction the property, IHCL challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.