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STANDING TALL
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New Delhi, Sept. 27: The Tatas will continue to manage the iconic Taj Mansingh property in the heart of the capital for another year with the New Delhi Municipal Corporation (NDMC) deciding to extend the lease.
The NDMC council today decided to extend the lease held by Indian Hotels Company (IHC) by a year till October 2013. During the intervening period, the municipal body will scout for an operator through an open auction though the Tatas will still have the right of first refusal.
The hotel building is owned by the civic body and is being run by the Tata group company on a 33-year lease, which expired last year and was extended till October 2012.
Taj Mansingh is a marquee property in Delhi and losing it will be a big blow to the Tatas, not just financially but also strategically as the group’s two hotels in the capital contribute substantially to IHC’s revenues.
The huge property, at a walking distance from India Gate in the heart of Lutyen’s New Delhi, has evoked interest among several parties, including the Oberoi group, Sahara, Accor and ITC.
The council also decided to continue with its rental share of 17.5 per cent of gross revenues that IHC would pay to NDMC during the extended one-year period. Till 2011, Taj Group was paying 10.5 per cent of its gross revenue, which was increased to 17.5 per cent by NDMC while granting the one-year extension till October this year.
In 2011, the agency had almost renewed the contract with IHC with the minimum licence fee for the first 10 years being set at Rs 21 crore and IHC having to pay 17.25 per cent of the gross turnover annually in the first 10 years. But before the new terms and conditions could be discussed with IHC, the urban development ministry intervened and directed NDMC to call for bids.
Industry observers said a higher share of gross revenue would squeeze the operator’s profit. “The profit margin in luxury hotels is about 36-38 per cent and sharing half of it will impact the profits of the operator,” they said.
NDMC had appointed Ernst & Young to determine the valuation of the property and explore other options that include finding another partner or even auctioning the landmark hotel. Ernst & Young has apparently suggested the pros and cons of the two options on the table: calling for an auction and renegotiating the deal.
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