Cheap rights offer from EIH may reheat takeover battle

The battle for East India Hotels (EIH) Ltd, India's second-biggest premium hotel chain, seems to be intensifying.

The company on Friday informed the Bombay Stock Exchange that its board had approved a rights issue of 178.61 million shares at Rs65 each, which is a 30.5 per cent discount of Friday's closing price of Rs93.5.

The rights issue, which is an offer to existing shareholders to purchase additional new shares in a company, is likely to make both Reliance Industries (RIL) and ITC - significant shareholders in the company - dig in their heels, as both would like to maintain their present stakes.

RIL has a 14.8 per cent stake in EIH, while ITC has 14.96 per cent - just short of the 15-per cent mark, which triggers an open offer according to the Securities and Exchange Board of India norms. The Oberoi family holds a 32.31 per cent stake.

EIH will raise Rs1,161 crore through the rights process, of which Rs900 crore would go for debt repayment and the balance to fund expansion.

The share sale opens on 1 March and closes on 15 March.