Two hotels to be sold by Leela for Rs 2k crore
Wealth funds of Abu Dhabi, Qatar and Malaysia are competing with each other to acquire two of India’s prime properties. It is going to be one of the biggest deals in the Indian hospitality industry.
The governments mentioned above are cash rich and are looking to pick up 74% stake in the Leela Group’s Delhi and Chennai hotels for over Rs 2,000 crore. The deal is also going to be unique as it will mark the entry of sovereign fund investment in the sector.
Hit by business slump, competition and demand-supply mismatch, the Leela chain has been in the red for the past several quarters. The ITC Hotels holds 12% stake in the chain.
In a move to restructure, the group has decided to hive off two properties into a separate entity. The group will, however, retain 26% stake and continue to manage the five-star hotels. All the three funds mentioned above are big investors in leisure and tourism assets. Abu Dhabi Investment Authority is the world’s third biggest sovereign fund. It has $627 billion of assets and recently bought Australia’s largest owner of hotels, Tourism Asset Holdings. Qatar Investment Authority owns luxury department store Harrods and has plans to expand the brand into hotels. Khazanah Nasional owns themed resorts in Malaysia.
The Leela Group had earlier moved the corporate debt restructuring (CDR) cell. The group is ceding majority ownership in its Chennai and New Delhi hotels to pare liabilities. IDBI Capital and SBI are managing the transaction and it is expected to be completed in the next few weeks. Corporate debt restructuring (CDR) is a mechanism where borrowers seek extension of loan period and adjustment of interest rate. SBI is the lead banker for the group.
The current debt level of the group is over Rs 4,000 crore and stake-divesture discussions are on to reduce that, confirmed Leela Group CMD Vivek Nair. The group wants to retain some ownership in this case, unlike the outright sale in case of Kovalam hotel. In fact, the industry trend has been to separate hotel ownership from hotel management.
Leela Delhi is the Capital’s first freehold property and is located in the diplomatic enclave at Chanakyapuri. It is a 260-room property for which the group acquired land for nearly Rs 600 crore, when the government auctioned it in the run-up to the 2010 Commonwealth Games. Leela Chennai is located on the sea face in Chennai’s MRC Nagar and is a 326-key property.
The group is eyeing to break the deal where it gets to manage the properties for 33 years for a fee. A loss of Rs 433 crore on revenues of Rs 653 crore in fiscal 2013 was reported by the group. Earlier, Chennai Business Park was sold for Rs 172 crore in 2012 and Kovalam beach hotel in Kerala was sold for Rs 500 crore in 2011 by the group.
Source: The Times of India
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Yes! Finally something about deal or no deal ratings.