Mumbai: Hotel 2 Ltd has secured in-principle approval from a consortium of bank, led by State Bank of India, to recast debt of about Rs 4,300 crore, which has forced the company to sell some of its properties.
Details of the corporate debt restructuring (CDR) programme will be finalized only after three weeks.
The proposed recast will ease the company’s loan burden with significantly lower interest rates. It comprises a three-pronged strategy with promoters investing money, funds being raised through debt instruments, and the sale of non-core real estate properties.
Indian Overseas Bank, Syndicate Bank, Bank of India and IDBI Bank Ltd are the other banks in the consortium.
Vivek Nair, vice-chairman and managing director of the hotel chain, confirmed the development. “The promoters will bring in Rs 150 crore as a part of the debt recast. Post the debt restructuring, we will be able to ease our debt burden,” he said.
Two senior investment bankers also confirmed the development, requesting anonymity. “The corporate debt restructuring was approved in-principle. The package is under formulation. But the restructuring is designed with a three-pronged strategy,” said one of the bankers.
Hotel Leelaventure has got approval for a debt recast of Rs4,300 crore. Mint’s P.R. Sanjai looks at how the recast will work and what it will mean for the struggling company
Leelaventure’s debt has built up over years of rapid expansion, including the setting up of a hotel in Delhi’s diplomatic enclave, which has forced it to sell off a prestigious property in Kovalam, near Kerala’s capital Thiruvananthapuram.
The company operates luxury brand The Leela Palaces, Hotels and Resorts with properties in Bangalore, Gurgaon, Mumbai, New Delhi, Goa, Kovalam and Udaipur. Properties will open soon in Chennai, Agra, Jaipur and Ashtamudi in Kerala.
The company was referred to the CDR cell after it posted a loss of about Rs 100 crore for the quarter ended 31 December. Interest costs rose 454.85% to Rs 111.58 crore in the quarter from a year earlier.
Total debt stood at Rs 4,295.15 crore for the half year ended 30 September, compared with Rs 3351.69 crore in the year ago period, registering a 28.15% increase.
Leelaventure shares gained 0.81% to close at Rs 31.05 apiece on Tuesday on BSE. The benchmark Sensex index rose 0.69% to end at 16,328.25 points.
Nair, who is confident about the company making a turnaround, said the debt would be restructured with a moratorium of two years, with no payments required to be made.
The company has plans to raise funds via financial instruments such as qualified institutional placements and foreign currency convertible bonds. “The amount will be ascertained at a later stage,” he added.
Nair said the lender consortium had approved the plan to sell off non-core assets.
The company has land banks in Hyderabad, Pune, Bangalore and Chennai. “This is expected to fetch the company at least Rs 850 crore,” he said.
Not everyone is convinced that the plan will work.
The debt recast would be a short- or medium-term solution, said Sumant Kumar, a senior analyst at domestic brokerage firm Elara Securities (India) Pvt. Ltd.
“Certainly, the debt recast is a welcome step. But the company has to repay the debt though it would be getting some moratorium or interest rate reduction,” Kumar said.
“Operationally, we are not seeing significant improvement in the top line because of the negative growth in the room occupancy ratio,” he added.
Kumar recently dropped coverage of Leelaventure, citing the debt overhang.
Granting the hospitality industry infrastructure status would bring relief to Leelaventure and the hotel industry as a whole, he said.
Hotels were included as one of the sub-sectors in the harmonized infrastructure list on 1 March by the government. The industry has asked that the infrastructure status, currently given to hotels of three stars and above category outside city limits with a population of more than one million, be extended throughout India.
This will enable the hotel industry to access cheaper funds from the market.
The industry’s ability to sustain inflation-adjusted average room realizations has been sapped by global economic uncertainty, the euro zone crisis, geopolitical turmoil in the Arab countries, high interest rates, inflation and muted domestic corporate performance in the year to 31 March, rating firm Icra Ltd had said in a note in March.