Lemon Tree shares in focus on Monday: Warburg Pincus investment, Fleur listing & more

Lemon Tree Hotels shares are likely to be in focus when the market opens on Monday, following the company's major announcement of a strategic restructuring, a fresh private equity infusion, and a roadmap for a new listing.

On Friday, the Lemon Tree stock settled 0.73 per cent lower at Rs 149.70 on BSE against its previous close of Rs 150.80.

In a bid to unlock shareholder value, the company's board has approved a Composite Scheme of Arrangement to segregate its business into two distinct, focused entities. Lemon Tree Hotels will transition into a pure-play, asset-light hotel management and brand platform, focusing on its management, franchising, and digital businesses, the company said in a filing on Saturday. 

Conversely, its subsidiary, Fleur Hotels, will operate as a large-scale growth-oriented hotel ownership platform, consolidating the group's asset-heavy properties and development capabilities, according to the filing with stock exchanges.

The reorganisation brings a massive vote of confidence from global private equity major Warburg Pincus. An affiliate of the firm, Coastal Cedar Investment B.V., has signed a Share Purchase Agreement to acquire the entire 41.09 per cent equity stake in Fleur currently held by APG Strategic Real Estate Pool N.V.

Warburg Pincus has also committed to a primary investment of up to Rs 960 crore in Fleur. This capital will be infused in tranches to support the future growth of Fleur, marking a renewed partnership between the two entities since Warburg’s initial investment in 2006, it said.

Investors will be keenly watching the demerger process, which paves the way for Fleur Hotels to be listed as a separate entity on the Indian bourses. The company said that the entire process to listing of Fleur is expected to be completed within 12 to 15 months, subject to regulatory and shareholder approvals.

Once the scheme is effective, Lemon Tree shareholders (as of the record date) will directly own 32.96 per cent of Fleur. Lemon Tree will retain a 41.03 per cent stake, while Warburg Pincus will hold 26.01 per cent (excluding dilution from the primary capital injection).

The complex scheme involves several internal mergers and transfers to clean up the corporate structure. Lemon Tree will merge its wholly-owned subsidiaries, Carnation Hotels and Hamstede Living, with itself. Simultaneously, the Demerged Undertaking—comprising 12 hotels (11 operational and one under construction in Shimla), the company's development team, and an investment in a Shillong hotel project—will be demerged into Fleur.

Patanjali Govind Keswani, Founder and Executive Chairman, said, "This scheme is intended to create a simplified, transparent, and growth-oriented structure for both companies, which we believe will enhance long-term value for our shareholders."

Anish Saraf, Managing Director, Warburg Pincus, added, "We are pleased to once again partner with Patu and the Fleur leadership team to support the next chapter of growth for the platform."