Aug. 10, 2011--Expanding a partnership that began a year ago with a stake sale, EIH Ltd is to build hotels and luxury homes jointly with Reliance Industries Ltd (RIL).

Two projects, in Goa and Bangalore, are currently being planned for joint development, EIH chairman Prithvi Raj Singh Oberoi said in Kolkata on Tuesday. More projects, both within and outside India, could be pursued jointly, he added.

The promoters of EIH, which owns and runs hotels under the Oberoi brand, sold a 14.12% stake to RIL a year ago for '1,021 crore. RIL has raised its stake since then to 14.9% by buying shares from the market.

The stake sale was widely seen as a move to ward off a potential takeover bid from ITC, which accumulated a 14.98% stake in EIH over 10 years. ITC, though, has always maintained it does not have any plans of wresting control of EIH.

RIL is "an important shareholder and a friendly shareholder", Oberoi said, speaking at the company's annual general meeting on Tuesday. RIL is "probably" going to appoint a director on the EIH board, but Oberoi said he didn't know when.

The stake sale was followed by a '1,179 crore rights issue, the proceeds of which were used to repay debts. While ITC and RIL subscribed to shares allotted to them, the rights issue enabled the Oberoi family to raise its holding from 32.31% to around 34.5%. The promoters bought the shares renounced by other shareholders. The properties that are to be developed will be managed by EIH and will carry the Oberoi brand, Oberoi added.

An RIL spokesman declined to comment.

EIH owns a 55-acre sea-facing plot in Goa and an 8-acre plot overlooking a lake in Bangalore. Besides hotels at both sites, EIH proposes to build bungalows in Goa and 60-65 apartments in Bangalore.

Across the world, luxury homes are built along with hotels to maximize revenue, said S.S. Mukerji, EIH vice-chairman. EIH proposes to sell these homes outright.

Prakash Diwan, head of institutional clients group at Asit.C. Mehta Investment Intermediates Ltd, said EIH and RIL as partners can complement each other since EIH does not want to commit additional financial capital to grow the hotels business and RIL has excess cash on its balance sheet waiting to be deployed.

"It makes business sense. Building a hotel may not require the kind of pedigree that will be required in running it day-to-day, which EIH will bring," Diwan said.

EIH fell 1.77% to '86.10 per on the Bombay Stock Exchange on Tuesday, while RIL lost 1.95% to '765.40. The benchmark Sensex lost 0.78% to 16,857.91 points.

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