The Taj group of hotels, along with ICICI Trustee Services (I-Ventures) has acquired the 500-room Regent Hotel at Bandra in Mumbai from the Lokhandwala group.

The total cost of acquisition is Rs 415 crore or Rs 80 lakh per room. Taj has acquired a stake of 19.9% for Rs 24 crore and I-Ventures holds an equity of 80.1%, for Rs 95 crore.

The remaining amount consists of debt liabilities assumed by the new promoters. The new hotel will be called Taj Lands End. The original promoters, the Lokhandwala group, have completely exited the company.

The Indian Hotels Company (IHC), which owns the Taj brand, will operate the hotel under a licensee agreement. Taj, in association with ICICI, will operate the hotel under a new joint venture company which is yet to be named.

Taj group officials claim that the total acquisition cost is 40% less than the replacement cost of an equivalent property. Lokhandwala Hotel Company claims that it had built the 508-room hotel for Rs 500 crore.

"Taj Lands End will not be a stand-alone deluxe hotel. It will be a world class mixed-use luxury complex by combing hotel, service apartments, retail and offices. The lobby too will wear a new look and IHC will infuse an additional Rs 30 crore to create service apartments on the top four floors," said R K Krishna Kumar, managing director, IHC.

Currently, under the new joint venture company, the equity component is Rs 119 crore while total debt is Rs 331 crore. Under a debt restructuring plan agreed to by the lenders, around Rs 81 crore of debt will be interest-free for a period of 27 months while Rs 47 crore of debt will be interest-free for Rs 31 months.

"The total cost of acquisition which includes equity, debt and interest on debt is Rs 450 crore, but it works out to Rs 415 crore owing to the interest-free loan. There are four levels of debt with varying interest rates," said Zubin Dubash, executive director.

The Taj group has plans to hike its equity stake in the new joint venture hotel company in the near future. IHC might raise its stake to 100% over a period of four years and can acquire 49% at any time.

If IHC does not hike its stake to 100% over the next four years, then ICICI will help IHC fund its equity with the help of a 15-year debenture which will have the principal repayment commencing after five years.

ICICI has currently acquired 80% equity against the debt and accumulated interest cost to LHL. ICICI has funded around 65% of the Rs 500-crore original project cost.

"IHC will also include the results of LHL in its consolidated accounts. IHC now plans to sell idle real estate assets in north Mumbai to fund its acquisition further," said Dubash.