IiAS advises shareholders to oppose ITC's hotel demerger on June 6.

Synopsis : Institutional Investor Advisory Services (IiAS) has recommended ITC shareholders to vote against the proposed demerger of its hotel business into ITC Hotels. Despite approvals from stock exchanges and the National Company Law Tribunal (NCLT) directing a shareholder meeting on June 6, IiAS argues that the demerger offers limited value unlocking and maintains ITC's financial responsibility towards the hotel business. ITC shares have shown modest gains ahead of the vote.

The National Company Law Tribunal (NCLT) recently directed ITC to convene a shareholders' meeting on June 6, 2024, to consider and approve the demerger of its hotel business into ITC Hotels. This move follows ITC receiving no-objection certificates from stock exchanges earlier.

Proxy advisory firm Institutional Investor Advisory Services (IiAS) has advised shareholders to vote against the demerger. IiAS's main argument is that the proposed structure does not fully unlock value for ITC's equity shareholders. While the demerger is designed to improve ITC’s financial ratios, it does not significantly reduce ITC's capital support responsibilities for the hotel business. According to IiAS, this partial unlocking of value does not provide a complete benefit to the shareholders.

ITC's hotel segment, which has added 24 hotels in the past two years and plans to open 27 more in the next two years, represents only a small portion of ITC's overall revenue—about 3%. IiAS suggests that this small contribution limits potential synergies with ITC's other businesses, such as FMCG and agriculture.

The demerger scheme specifies that ITC shareholders will receive equity shares in ITC Hotels in the ratio of 1:10. Post-demerger, ITC shareholders will own 60% of ITC Hotels directly, with the remaining 40% held by ITC.

Shares of ITC have responded positively in the lead-up to the vote, trading 0.41% higher at Rs 437.90 on the Bombay Stock Exchange.

Overall, the outcome of the June 6 vote will determine whether ITC proceeds with its plan to spin off the hotel business, creating a separate pure-play hotels entity intended to foster growth and value creation for its shareholders.

Disclaimer : we provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

Related Questions

1. What directive did the National Company Law Tribunal (NCLT) issue to ITC, and when is the shareholders' meeting scheduled?

The NCLT directed ITC to convene a shareholders' meeting on June 6, 2024, to consider and approve the demerger of its hotel business into ITC Hotels.

2. What recommendation did Institutional Investor Advisory Services (IiAS) make regarding the demerger, and what is their main argument?

IiAS advised shareholders to vote against the demerger, arguing that the proposed structure does not fully unlock value for ITC's equity shareholders. According to IiAS, the partial unlocking of value does not provide a complete benefit to the shareholders.

3. What concerns does IiAS raise regarding the demerger's impact on ITC's financial ratios and capital support responsibilities?

IiAS highlights that while the demerger is designed to improve ITC’s financial ratios, it does not significantly reduce ITC's capital support responsibilities for the hotel business, which may not fully unlock value for shareholders.

4. What are the details of the demerger scheme, and how will it affect ITC shareholders?

The demerger scheme states that ITC shareholders will receive equity shares in ITC Hotels in the ratio of 1:10. Post-demerger, ITC shareholders will own 60% of ITC Hotels directly, with the remaining 40% held by ITC.

5. How have shares of ITC performed in response to the upcoming vote on the demerger?

Shares of ITC have responded positively, trading 0.41% higher at Rs 437.90 on the Bombay Stock Exchange in anticipation of the vote on June 6.