ITC Demerger: IiAS advises shareholders to vote against splitting of hotels business

IiAS stated that the does not have clarity on its plan for the 40% holding in the hotels business about whether it proposes to eventually sell the to a strategic buyer or continue to hold it.

has relatively small revenue, which makes up only 3% of the company’s total count, which may limit the potential for synergy between ITC’s hotel business and its other businesses — agriculture and FMCG, added IiAS.

ITC, on the other hand, argued that its hotel business has matured enough and will be able to raise capital through both debt and equity on its own while stating that will have a strong balance sheet with a net worth of Rs 9,600 crore and zero debt.

"While this may be reflected in the strength of its recent performance of the business, the hotels business inherently carries high operating leverage and revenue volatility and may, over the years, need capital support from Limited as its promoter,” the maintained, citing the case of , one of ITC's competitors, which has raised equity totalling Rs 3,980 crore in the past five years.

ITC believes that the hotel chain is a valuable asset, which can attract potential investors and thus, retaining a 40% stake in Hotels would provide ITC with stability, flexibility and headroom for any future dilution in the event of any equity fund raised by the hotel business.

Another proxy firm has recommended voting in favour of the demerger.

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Under the demerger plan, shareholders of ITC will get one share in the demerged hotels business for every 10 shares held in the parent company. The demerger process is expected to be completed in this calendar year after which ITC Hotels will get listed on stock exchanges.

As part of the demerger plan, ITC will own 40% of ITC Hotels while the remaining 60% will be owned by ITC shareholders in proportion to their ownership in the parent entity.

Following the scheme of arrangement, there would be no change in the shareholding pattern of ITC and ITC Hotels would be given a licence to use ‘ITC’ prefix as part of its corporate name and also as part of some of its properties or brand name for a royalty fee.

ITC will convene a meeting of ordinary shareholders on June 6 to approve the proposed hotel demerger, wherein ITC's 36 lakh shareholders can vote on the resolution. The proposed voting requires over 75% of the votes in favour.

ITC shares were trading flat on the BSE at Rs 435 on Monday around 2 pm.

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