India's first Ritz Carlton goes on the block
3 min read 05 Sep 2022, 12:18 AM ISTYes Bank plans to take over the property over non-payment loans.
PremiumThe Ritz Carlton hotel in Bengaluru, developed by NEL Holdings South Ltd (formerly Nitesh Estates), could see a change in ownership as Yes Bank plans to take over the property over non-payment of ₹300 crore in loans.
Once it takes over the property, Yes Bank will either sell it to a new buyer or seek a suitor when it petitions the National Company Law Tribunal, two executives familiar with the development said, requesting anonymity.
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The property is the county’s first hotel started by Marriott International under its Ritz Carlton brand.
The development marks a setback for Nitesh Shetty, founder-chairman and managing director of the Nitesh Group, who was once hailed as a real estate mogul but has recently seen his fortunes tumble. NEL Holdings not only owes money to banks and creditors, but is also battling several cases filed by property buyers in courts over the non-completion of projects.
Yes Bank first sent a notice under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interests Act, or SARFAESI Act, late last year to NEL Holdings, one of the two executives said. The notice, sent under Section 13 (2), allows Yes Bank to take possession of the hotel over non-payment of dues if the borrower cannot pay outstanding dues within two months. This was after Yes Bank classified loans owed to the Nitesh Group as non-performing in 2020.
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Emails sent to Nitesh Shetty and the spokesperson for Yes Bank seeking comment went unanswered.
NEL Holdings, which went public in 2010, had borrowed about ₹300 crore from Yes Bank as its subsidiary, Nitesh Residency Hotels Pvt. Ltd, built the 281-room hotel in the city’s central business district.
Still, Yes Bank could find it challenging to find a buyer for the property, where the cheapest room costs ₹21,000 a night, primarily because of the crushing rental structure.
Nitesh got the 2.7-acre land owned by the Archdiocese of Bangalore when Nitesh Residency Hotels signed a 40-year lease with the Church in January 2007, according to land agreement documents reviewed by Mint.
Nitesh Residency agreed to pay a monthly rent of ₹39.4 lakh to the Archdiocese during the time of construction of the hotel. After spending ₹770 crore over five years, Ritz Carlton opened in October 2013. Marriott Hotels earns 0.4% of the gross revenues from the hotel as its operator. However, both parties have agreed that the monthly rental would now be ₹1.29 crore.
Yes Bank is now looking to rework the rental agreement as the rent payable on the property is more than twice the rate in the area, according to the executives cited above.
“Yes Bank is discussing with Nitesh and the Church to resolve this matter under which the Church gets a fair monthly rent, and the bank can recover its money," said the second executive on the condition of anonymity.
“There will be no impact on Ritz Carlton as it is the operator of the hotel," the executive clarified.
NEL Holdings owns 20.7% of Nitesh Residency Hotels, while Nitesh Shetty owns another 5.3%. Citigroup Property Investors holds the remaining 74% stake.
NEL Holdings’ total income declined 20% to ₹281.9 crore in the year ended 31 March and reported a loss of ₹65.3 crore. This was after the real estate company announced in 2019 that it would exit the residential housing space. NEL Holdings’ auditor had underlined the negative net worth of the company and its negative cash flow.
“The default in payment of dues to banks and financial institutions and creditors, etc., are the identified events that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern," said Ray & Ray, the Kolkata-based statutory auditor.
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