Hotel Leelaventure to retain 25% in Chennai, Delhi properties

Luxury hospitality firm Hotel Leelaventure, which is in talks with sovereign wealth funds to sell its prime properties in Chennai and Delhi, expects to retain at least 25 per cent stake in these ventures, as it wants to hold on to the ‘Leela’ brand name.

In 2011, when the Leela Kovalam was sold, the company took the property back under a management contract, so that it could retain the brand name. But it did not retain any stake in the property.

“Since we want to retain the Leela brand, we want to float a special purpose vehicle, through which we will control a 25-26 per cent stake, while the balance will be with the investor who buys into our property,” said Vivek Nair, Chairman and Managing Director.

“We also want to forge joint ventures with sovereign wealth funds. At the moment, we are still waiting to get the right valuations for our properties.” In the past, the company had divested its holdings through the QIP (qualified institutional placement) and FCCB (foreign currency convertible bonds) routes. “Now, we will be replacing them with sovereign wealth investors to bring equity into the company,” added Nair.

High debt As of June 30, the company had an outstanding debt of ₹5,000 crore, of which about ₹4,000 crore is with a consortium led by State Bank of India.

Among its six company-owned five-star properties, two or three are being considered for disinvestment. Sources say the Delhi and Chennai hotels could be the next on the block.

SBI, the lead banker for Leela Ventures, has an exposure of almost ₹900 crore, and has been selling the loans to asset reconstruction companies (ARC), with JM Financial Asset Reconstruction picking up most of them.

“The banks have sold our loans to ARCs, and they are working towards divesting some of our properties. Once the hospitality industry was given the infrastructure status, the older stressed hotels would be given a longer horizon to repay debt,” Nair said.

“The RBI and other banks are treating us as regular corporate borrowers with 8-10 years maximum tenure, leaving 4-5 years to repay the entire debt. This is impossible with high project costs and long gestation periods, along with the cost of interest. But in the new properties, we can lower the rate of interest and avail (ourselves) of tax bonds from infrastructure companies like IL&FS.”

Debt equity ratio Borrowing extensively to build new hotels for which land acquisition has been the primary cost, Leela Ventures has been trying to balance its debt equity ratio.

“We had to take huge loans to build hotels during the Commonwealth Games, to buy land for our hotels. We are hopeful of bringing our debt equity ratio to 1.2:1 in the next three years at sustainable levels,” Nair said.

Leela Ventures says it has the highest average room revenues (ARR), which is a metric widely used in the hospitality industry to indicate the average realised room rental a day. In 2014, The Leela Mumbai had an ARR of ₹7,717, while at the Leela Goa it was ₹15,199.

“We are the market leaders in commanding the highest revenues per average room in the markets that we are present in, with Goa commanding the highest revenues,” he said.

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