Saddled with huge debts and low demand, the hospitality sector is not just facing a dip in valuations, but deals have also become tough to go through.
DLF?s Aman Resorts, Royal Orchid Hotels, Viceroy Hotels? JW Marriott and Leela?s Chennai property are a few examples of hotels on the block, but the deals are not getting finalised as the tepid market does not have a premium to offer.
Real estate major DLF?s Aman Resorts, which it bought in 2007 for $400 million, has been on the block with Goldman Sachs and Citi Group advising on the deal. Though the developer has been wanting to liquidate its hotel assets, a non-core business for the company, to retire its debt, the sale has not been struck yet. Names of many suitors have cropped up in last one year, like Malaysian government?s wealth fund Khazanah and Kingdom Holdings that owns Four Seasons Hotels, but the deal that is expected to fetch DLF over R2,000 crore remains stuck.
?If buyers were ready to buy at that price the transaction would have happened by now,? comments an analyst with a brokerage firm.
Similarly, home-grown hotel player Royal Orchid has said it is looking at selling off a couple of properties to reduce its debt of over R300 crore. When asked, MD of Royal Orchid Hotels Chander Baljee said that they are looking at selling a few properties, but there are no active discussions right now.
In the same vein, after selling its Kovalam property last year, Hotel LeelaVentures, which, too, is reeling under debt, is reportedly in talks for selling its Chennai property, which will be opening next month and is built at a cost of R1,000 crore. Hyderabad-based Viceroy Hotels is also looking at selling its JW Marriott Hotel in Chennai.
?South India is witnessing oversupply of hotel rooms compared to north India. So that?s the market where promoters are looking at selling their assets,? says Rashesh Shah, research analyst, ICICI Direct.
As slowdown blues and inflation continues to mar the Indian hospitality sector, not many investors want to check-in, especially at the kind of premium that few of these properties command.
?Around 10-20% premium is a norm but the hotels that are on the block have an asking price at a much higher premium. Also the valuation has to be supported by the income of the hotel. Its only in the case of HNIs, where aspiration is attached to buying a hotel that a huge premium is paid,? an industry analyst points out, giving example of the Leela Kovalam property, which NRI Ravi Pillai acquired last year for a ??good valuation?? of R500 crore.
Besides this one, some stray deals that have happened in the last one year are Mahindra Holidays & Resorts acquiring Zuri?s ?The Retreat? in Goa for R112 crore and Mayfair Group buying Oberoi?s Palm Beach property in Orissa.
Citing another reason why India market is not very exciting right now, hospitality consultancy HVS India?s managing director Kaushik Vardharajan says, ?With Europe in turmoil it?s not the best time to raise money for acquisitions. At the same time in the US and Europe hotel properties, hit by downturn, are cheaper. In fact, few Indian hotel players have already bought properties in these markets instead of investing in India.?
Though money is trickling in the hospitality sector by way of private equity funding, big-ticket acquisitions are yet to be witnessed.
?Even though funds (private equity) are investing in the hospitality sector, acquisitions are not materialising as the markets continue to remain dull. Also hotel deals depend on real estate, which is still grappling with a slump,? says CG Srividya, partner at Grant Thornton India.
Some of the funds that have picked stakes in the hotel sector in the last year are Omega TC Holdings in Roots Corporation (Tata Group?s subsidiary that runs budget hotels Ginger) for $32.61 million, DMI Finance investing in Svenska Design Hotels, Elephant Capital?s investment in East India Hotels (that operates Oberoi Group of Hotels).