Who Owns The Taj?

IN the buzzing business circles of Mumbai, there's little doubt Ajit Kerkar, chairman of the Indian Hotels Company (IHC), is on his way out. His blood pressure and illness—reasons for the postponement of the board meeting scheduled to nominate his successor last week—have only delayed the inevitable. Allegations about Kerkar having subverted rules and ethics for his personal benefit abound. According to reports, the Tata group has already forwarded documents proving FERA violations by IHC (read Kerkar) to the RBI. If that's true, the Ratan Tata-Kerkar battle for control of the Taj group has reached a level of nastiness unmatched in Indian corporate history.

 In his 37 years at the Taj, Kerkar has created a cash-rich company with one of the strongest brand names in the Tata empire. Sales exceeded Rs 618 crore and net profit over Rs 146 crore for 1996-97. From one badly-run hotel in Mumbai, the group today owns over 40 hotels in India and abroad. But with Ratan Tata wanting a say in the running of the Taj and Kerkar stonewalling him, the former seems to have decided to concentrate on Kerkar's means rather than his impeccable ends. Even if he has to wash a lot of dirty linen in public. But even if Tata manages to oust Kerkar from the IHC board, can he keep him out? Outlook's investigations throw up a very interesting picture. The ownership and management of Taj hotels are routed through a maze of companies, subsidiaries and crossholdings. Piem Hotels Ltd, for instance, promoted by the Nagpals in '68, was acquired by the Taj group in '77 with a 55.64 per cent stake. However, IHC holds only 4.65 per cent of Piem Hotels, while Taj Investment & Finance Company (TIFCO), Taj Holdings Ltd, Taj Trade and Investments Ltd, Investment Corporation of India and IHC executives together own 51 per cent of Piem Hotels which include Hotel President in Mumbai, Taj Residency in Bangalore, Taj View in Agra, and Taj Residency in Indore. IHC has a long-term fee-based management contract with Piem Hotels for all its hotels.

Similarly, Oriental Hotels Ltd (OHL) with hotels in Chennai, Vizag and Kochi also has a management  contract with IHC which owns only 10.3 per cent in the company. The ownership of the different Taj group companies is difficult to trace, though sources claim that Kerkar and his family have built up substantial holdings in them. In December '94, Oriental Hotels made a $30 million GDR issue priced at $12.75 (Rs 300) per GDR. From these proceeds, OHL acquired 50 per cent of Executive Plaza Hotel in Chicago, through a newly-incorporated subsidiary of OHL in Hong Kong at a cost of $1 million. In addition, OHL also signed a fee-based management contract with Hotel Executive Plaza.

Meanwhile, IHC acquired 49 per cent stake in an overseas Tata company—Asian Resort and Restaurant Associates (ARRA), UK, in '88. In '92, IHC also set up its subsidiary in Hong Kong known as Taj International (HK) Ltd to manage its international hotels. In April '95, IHC itself floated a $125 million GDR issue which would reduce the Tata group holding in IHC to 42 per cent. Post-GDR, IHC was supposed to let Taj HK acquire indirect ownership of ARRA and its hotels through Oriental and Piem. As per the GDR offer document, Taj HK has agreed to share half of New York's Hotel Lexington's incentive fees with Piem and half of Executive Plaza management and incentive fees with Oriental in consideration for equity investments in the hotels.

THE GDR issue of Oriental was supposed to be placed with very few foreign investors. What the Tatas suspect is that Kerkar manipulated the placement to go to Taj HK and some of his group companies abroad. Bombay House fears that not only has Kerkar become synonymous with the Taj group, he also owns several properties within India and abroad through a chain of subsidiary companies. Almost to add credence to these doubts, when the Taj group was awarded the Rs 1,000-crore hotel and convention centre at Bandra-Kurla complex, Kerkar decided to float a separate company for the project. In the new company, IHC and other Tata companies are supposed to hold only a 15 per cent stake while the rest was to be financed by contributions from overseas partners and public issue. The overseas partner is today being read as Kerkar's own associate companies abroad. The almost incestuous nexus between IHC and Kerkar's own company, Cox & Kings India—managed by his son Peter Kerkar—is being seen as yet another attempt by the chairman to increase his clout over the hotel industry. The fear in Bombay House is that it can get IHC—it owns 42 per cent in it and its board is packed with Tata men—but it will lose the hotels. The only hope Tatas could have to retain the hotels is to get Kerkar convicted on some FERA violations he may have committed while taking control of the companies.

If Kerkar does own the hotels more than the Tatas, there could be some sort of poetic justice in it. For throughout his long career, Tatas never funded IHC's expansion plans, leaving Kerkar to organise the funds himself or get into tie-ups with other companies to set up the hotels. Kerkar obviously had more faith than the Tatas in his abilities, and he may have just put his money where his mouth was, and kept on investing in shares in the hotels.

Whether Kerkar's FERA violations can ever be proved in a court of law remains to be seen. But industry veterans are sure that even if Kerkar is ousted on September 8, it won't be the end of the story. Says the chairman of a blue-chip company who knows both Kerkar and Ratan Tata personally: "In this case, Ratan Tata may have met his match. He sure won't have the last laugh.