Hyatt closure exposes covid impact on hospitality sector

Asian Hotels (West) has to temporarily shut down its property Hyatt Regency, Mumbai, as the company’s lender Yes Bank is not releasing payments after it defaulted on loans because of the massive impact of covid on its business, it said in a BSE filing. On Monday, it had announced the temporary closure of the hotel.

The company’s shares fell by more than 13% on Tuesday amid uncertainty over its business operations. The development exposed the massive setback that the hospitality industry is facing across various segments.

Asian Hotels (West) failed to repay the principal and interest of ₹4.32 crore taken from Yes Bank as term loans, it said in filings made to the stock exchanges. The defaults included a car loan EMI of ₹4 lakh. The company has a total debt of ₹262.54 crore.

“The company defaulted Yes Bank’s due instalment on 28 April 2021 (for the first time in its history) due to the massive effect of covid -19 pandemic on the company,” said Asian Hotels (West) in a BSE filing on Tuesday.

“Since then, Yes Bank has held all funds including daily hotel collections in the escrow account and the company/hotel is not allowed to make any payment, including taxes, vendors’ payments, on roll employees’ salaries (more than 300 hotel and corporate employees) and for other critical hotel services from the said account,” it said.

The company also notified that Yes Bank has made some payments from the escrow account towards the hotel’s electricity, water and gas charges.

On Tuesday, a total of 193 employees of the five-star hotel moved the industrial court over fears of termination of employment. The company promoted by Sushil Kumar Gupta is among big hospitality firms that are facing serious challenges in procuring credit from banks as they continue to have a negative outlook for the hospitality sector, said industry executives.

There have been complaints from across the board that banks have not been cooperative with borrowers from the hospitality sector, often coaxing them to cough up funds from other sources, said a senior executive on the condition of anonymity.

“Every hospitality company is in some kind of debt. Profitability is not easy to achieve for most major chains as these depend heavily on inbound tourism, which has been halted for more than a year-and-a-half. The pandemic has led to revenues of these chains declining by 80%, leading to serious cash-flow issues,” the executive noted.

The exposure of the banking industry to tourism and hotels is around ₹50,000 crore, which is less than 1% of the total non-food credit of the banking industry, said Binod Modi, head of strategy at Reliance Securities. “Therefore, any meaningful impact due to default of interest payment by Asian Hotels might be insignificant,” he said.

Big hotels are operating with barely 5% occupancy across metros. In the absence of revenues for more than a year, costs such as electricity, water and property taxes as well as maintenance and salaries have eaten up the existing cash reserves of hospitality firms.

Hotels such as Hyatt Regency, Mumbai, are asset-heavy with the entire capital having to be put upfront. Besides, 800 to 1,000 people are employed to manage the 400-room property.

The government has extended sops to the hospitality industry, but only in the form of the Emergency Credit Line Guarantee Scheme. The Reserve Bank of India has doubled loan restructuring limits for struggling small companies to ₹50 crore and announced a ₹15,000 crore liquidity window. The industry is in desperate need of a stimulus that will put money in the hands of hotel owners across segments, executives said.

Non-compliance of banks, absence of direct stimulus and continuing pandemic-related disruptions will create non-performing assets, said Pradeep Shetty, joint secretary, Federation of Hotel and Restaurant Associations of India (FHRAI).

The FHRAI on Tuesday met tourism ministry officials to discuss the challenges facing the industry.

The total revenue of the Indian hotel industry stood at ₹1.82 trillion in FY20. In FY21, approximately 75 % of the industry’s revenues, estimated to be more than ₹1.3 trillion, were wiped out. The total loan outstanding to the industry is more than ₹60,000 crore.