Mumbai: Raymond Bickson, the Hawaiian managing director and CEO of Indian Hotels Company Ltd, which runs the Taj chain of hotels, has sewed up yet another acquisition in San Francisco for Rs258 crore, or $60 million.
Hotel Campton Place, a 110-room luxury boutique hotel, is the ninth property (including management contracts) that the group has brought into its fold in the last three years. And Bickson’s not done yet.
The “little acquisition”, Bickson says, is part of the firm’s strategy to add 10,000 hotel rooms by 2012—in other words, double the capacity that Indian Hotels has built up through greenfield ventures, acquisitions or strategic alliances over 40 years, in just the next five.
But, with its foreign currency convertible bond offering of $150 million already used to fund some of these acquisitions, Indian Hotels needs to explore new avenues of financing to fuel its ambitious growth path. Among the options on the table are raising funds through the Tata group’s upcoming $1 billion realty fund, infusion of funds from partners such as Taj GVK hotels and tapping the resources of private equity groups to partner on specific properties, such as the one in San Francisco.
In a telephone interview from New York, Raymond Bickson spoke to Mint about the Taj group’s continued global expansion spree. Edited excerpts:
Indian Hotels will need to raise sizeable funds to implement its aggressive growth targets. In the recent deal, you tied up with strategic investors for financing. After the FCCB has been utilized, are you planning another overseas issue or would you prefer to raise funds from private investors?
We are an asset light and asset right company. Financing depends on the opportunity that the transaction offers. While we’ve pretty much used up the FCCB with the buyout of the Ritz-Carlton in Boston and the hotel in Sydney, as well as the renovation of the Pierre Hotel in New York and the little hotel in San Francisco. At this point, I don’t see us going for another FCCB soon.
We will go in for slivers of equity, management contracts, ask our partners (e.g. Taj GVK, Piem Hotels) to invest in our growth and tie up with venture capitalists. For instance, in the Campton Place transaction, we partnered with real-estate funds. The entire transaction is self-financing and the hotel operations will service the debt generated by it.
Would you seek to partner with the $1 billion infrastructure and realty fund that the Tata group is considering?
Yes, if the fund includes the hotels segment, we would be keen at accessing this fund.
You had spoken about setting up a greenfield hotel in Los Angeles. Are you still interested in LA or has there been a shift in focus of your globalisation strategy?
We have stated our objective of being present in the key gateway cities of the world wherever we don’t have a presence. Cities that are hubs on the Indian Ocean rim, West Asia as well as the mature European and North American markets serve as source markets for our operations. In fact, the mature markets are really the most important for us, as UK and Europe, for instance, generate 25% of our business while the US is about 15%. Hence, both Los Angeles and San Francisco are both key for the west coast in this context. We are not looking at a greenfield project in LA for now, though LA is very much a target destination as far as we’re concerned.
The point is to look for synergies in locations such as those between US west coast and other places like Sydney so that we can cater to travelers on this route.
The paucity of hotel rooms in India makes headlines all over the world. What are your plans for the domestic market?
We have been the most aggressive Indian company in this sector. Last year, we opened 10 Ginger (IHL’s budget brand) properties. We’re huge and we’re in all the segments whether it’s luxury, five-star, four-star premium, three-star or budget. We’re opening two hotels in Bangalore, the Falaknuma Palace in Hyderabad, a 60 all-suite palace hotel we’ve had for years…we’re keen on both luxury and budget segments.
New opportunities are also thrown up by the dynamic development of areas like the Mumbai-Pune belt.
Recently, hoteliers have voiced concerns over the viability of budget hotels as real-estate costs have gone up substantially in India.
We’re fully committed to growing the Ginger brand. Real-estate prices are a global phenomenon whether it’s Shanghai or New York. A business model has to be made around the existing conditions. Dubai is an interesting example of this where a spanking new city came up in the middle of a desert.