Leelaventure seeks revaluation of stressed assets

As the disinvestment process gathers steam for Hotel Leelaventure’s properties in Chennai and Delhi, the hotel’s Chief Managing Director is working on a fresh proposal to get the right valuation for his assets.

The proposal will be presented to the company’s board. The hotelier is insisting on a ‘revaluation’ exercise for his stressed assets while selling them to sovereign funds. The assets are currently under the control of JM Financial Asset Reconstruction Company.

“It will not give us any joy to sell the distressed assets at a price which is half the market value. The last property that we sold was that of Goa. Now we intend keeping the rest of the properties intact unless we get a fair value. We are confident with our current proposal to the board,’’ said Vivek Nair, CMD, Hotel Leelaventure.

The Leela Group continues to own six hotels and operates three under its brand name. JM Financial Asset Reconstruction, which acquired its debt of about ₹4,000 crore, has been steadily selling its assets.

The most recent one is the sale of its Goa property for ₹725 crore to Ceres Hotels, a unit of MetTube, Malaysia. In 2011, Leela Kovalam in Kerala was sold for ₹500 crore to Travancore Enterprises. In 2013, its IT park building in Chennai was also sold to Reliance Industries for ₹170.17 crore.

“There is a mammoth problem afflicting the entire hotel industry with about ₹20,000 crore of hotel loans being either NPAs or in the process of being assigned to asset reconstruction companies. Today more than 200 hotels are under threat of being auctioned by the banks,’’ added Nair.

Currently sovereign funds like Abu Dhabi Investment Authority (ADIA) and Qatar Investment Authority (QIA) are some of the sovereign funds who have shown interest in investing in the debt-laden company.

“We are in talks with sovereign funds and they also know that the industry here has been affected due to some of the policies of the government banks since they give only short-term loans. Now we want the sovereign funds to revaluate and the valuation should be done in two ways. One is the replacement cost based on the present day value and assets of the land. The other is the discounted cash flows and that depends on the average rate and the occupancies. These two have been badly affected in the last two years. The right thing would be to have a via media between the two and discussions are on with sovereign funds,’’ he said.

Meanwhile, the company is looking to set up hotels in overseas markets like West Asia under its own brand through management contracts.

“Our brand is well known here, so recognition will be easier when we enter markets in the Middle East where we are in talks to have four-five properties under the Leela brand. But these would be on management contracts in which there is no investment there but you get fees which is commensurate to about 7-8 per of the total revenues, a model being followed by all the international chains including the likes of the Marriott and Hyatt,” observed Nair.

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