1. Hotel Leela looks to cut debt by stake sale, bring new investors

Hotel Leela looks to cut debt by stake sale, bring new investors

The promoters of Hotel Leelaventure, are likely to consider diluting their holding as well as bringing in strategic investors to pare down its debt of Rs 5,000 crore...

By: | New Delhi | Published: September 22, 2015 12:35 AM

The promoters of Hotel Leelaventure, are likely to consider diluting their holding as well as bringing in strategic investors to pare down its debt of Rs 5,000 crore, according to its chairman.

“We are looking at strategic investors coming in and we the promoters have 64% stake, so there is scope for dilution as long as we are able to maintain overall control,” Vivek Nair, who is also Hotel Leelaventure’s managing director, said in an interview to CNBC-TV18 on Monday.

Nair’s comments comes days after Hotel Leelaventure announced that it would continue to manage its Goa property, after selling the property to a subsidiary of a Malaysian firm. That sale was part of the company’s decision to sell its Goa and Chennai properties, to trim down its debt.

“The disinvestment of the Goa Hotel and retaining the management of the hotel under the Leela brand is in line with our strategy to reduce our debt, follow an asset light strategy and manage more hotels,” Vivek Nair, chairman and managing director of Hotel Leelaventure said in a statement.

In the hotels business, owning and maintaining a property is expensive and is often, a drag on margins, affecting profitability. Managing hotels is much simpler and offers higher margins. The sale is part of Hotel Leelaventure’s decision in March to sell its properties in Goa and Chennai, and it had called in for bids through its financial adviser, JM Financial Institutional Securities. The transaction will reduce its expenses, and debt, while at the same time increase its profits as it retains the management of the property.

Hotel Leelaventure, which ran a fledgling hotels business took loans for rapid expansion of its chain. But defaulted on them, as the new properties did not turn profitable as the company had originally anticipated.

In June 2012, it took an approval from its lenders to repay Rs 4300 crore worth loans by selling its assets. The lead banker for the account is State Bank of India (SBI) and the consortium includes Syndicate Bank, Indian Overseas Bank, Vijaya Bank and IDBI Bank. J.M. Financial is acting on behalf of these lenders.

Even after three years things have not improved as much as expected. During the last financial year through March end, Hotel Leelaventure’s net loss widened to Rs 441.50 crore from Rs 415.84 crore from a year earlier, as its expenses was higher than its total income. The company’s expenses grew 12.9% to Rs 851.29 crore from a year earlier, while its total income grew 5% to 754.95 crore.

Last weekend, it agreed to sell its most-profitable property in Goa, which contributed about 15% to total income. The average room rates at this hotel increased by 7% to Rs 16,304 per room, compared to a year earlier, while its occupancy fell to 67% during the fiscal, from 71% in the past two fiscal, data from the company’s investor’s presentation showed. The lower occupancy was because of decline in arrival of tourists from Russia – one of the major contributors to tourism industry in Goa – as a weak Russian rouble makes it costlier for tourists there to travel outside their country. Russian’s are the fifth largest foreign tourists into India, after U.S., Bangladesh, U.K., and Sri Lanka. Last year of the total 76.79 crore tourists who came to India, about 3.51% were from Russia.

Despite the challenges, Nair told in that television interview that he had to sell his “most profitable” hotel to keep up his commitment to repay loans. “In fact the Goa hotel has a gross operating profit (GOP) of as high as 45 percent and is a most profitable in the country,” he said. “The fact is that we have to commit to the road-map we established to bring down the debt.”

On Saturday, Hotel Leelaventure’s board of directors approved a proposal to sell the company’s “entire undertaking of the company that owns and runs its “The Leela, Goa” on a slump basis, for a lump sum consideration of Rs 725 crore to Ceres Hotels Pvt. Ltd.” the company said in a filing to the stock exchanges.

The sale to Ceres Hotels – a subsidiary of MetTube Sdn. Bhd., of Malaysia – would be by way of business transfer agreement, it said. The property is spread on a 50-acre property, and has 206 rooms with beach view access, and a 12-hole golf course. Before the sale of Hotel Leela, Goa, the company had a total portfolio of six owned and two managed luxury palaces and hotels in India.

MetTube is part of Lord Bagri-promoted diversified Metdist Group, which has a global presence in metals trading and fabrication industries, and business interests in apparel, real estate and insurance.

“Upon the completion of the sale which is expected to occur on or before December 31, 2015, pursuant to a Hotel Operations and Management Services Agreement, the company will continue to manage and operate the Goa hotel, and the hotel shall continue to be known as “The Leela, Goa”” the statement added.

The Goa property sale would not help Hotel Leelaventure to retire its huge debt immediately, and turn profitable. “We have to look at the restructuring exercise which will be completed by – I would say about 6 months to one year and then we would definitely look something positive,” He said.

Nair sought to allay fears of losing out on earnings because of the Goa property sale, as Hotel Leelaventure would get a standard management contract fee, which includes of a basic fee and incentive fee, based on the gross operating profits. “Then we have about 10 new management contracts lined up so what we would lose in terms of the GOPs of Goa will be made up by the management in these,” Nair added.

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