Reliance enters hospitality sector via EIH stake

India's top listed conglomerate, Reliance Industries, pushed ahead with its strategy to diversify into new businesses by acquiring a 14.1 per cent stake in hotel chain EIH for $217.5 million.

Controlled by Mukesh Ambani, the world's fourth-richest man, Reliance's interests include petrochemicals, refining, oil and gas exploration, and retail.

The cash-rich company, which has the highest weighting in the benchmark Bombay Stock Exchange index, is making a big push into power, telecoms, shale gas and financials as it seeks new growth levers.

"It is a first step towards Reliance's diversification into the hospitality sector. This deal will give them some insight into the sector and then they will take it forward," said Arun Kejriwal, director of research firm KRIS.

EIH, which runs the luxury Oberoi and Trident chain of hotels, said its founders sold 55.5 million shares in the company for Rs10.2 billion. That equates to Rs 184 a share, a premium of 36 per cent to Friday's closing price.

"The kind of high premium Reliance is paying for the stake itself shows that they are very serious about the business," Kejriwal said.

Reliance's 14.1 percent stake in EIH, just shy of the 15 per cent level that triggers a mandatory open offer to buy an additional 20 per cent, could mean the company was not keen to take management control of the hotel chain, Kejriwal said.

In India's growing hospitality sector, Reliance will compete with players such as Indian Hotels Company -- owner of the Taj luxury chain and an arm of the Tata Group -- and ITC, which also makes cigarettes.

EIH manages 32 hotels globally and has been looking to expand in overseas locations such as London, New York and Paris.

Analysts said the deal was likely to thwart designs of EIH's larger rival ITC, which holds a 14.98 per cent stake in EIH, to raise its stake in the hotel chain.

ITC has reportedly been looking to raise its stake in EIH, but its chairman last month ruled out plans to make an open offer.

"By bringing in Reliance as a 14.1 per cent stake owner, it may become difficult for ITC to make any takeover attempts for EIH," said Jagannadham Thunuguntla, equity head of brokerage SMC Capitals in New Delhi.

"Here, Reliance is a perfect white knight for EIH."

Reliance has spread its wings after it was freed from a pact that banned it from competing with firms owned by Mukesh Ambani's brother, Anil Ambani.

Reliance, which had a $5.7 billion cash pile as of June 30, has been on an acquisition spree and has invested in three shale gas joint ventures with U.S. companies so far this year.

It also made a dramatic return to the telecom business with the $1 billion acquisition of Infotel Broadband, the only company to win a nationwide licence for broadband wireless spectrums in a government auction. 

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