At least five top international private equity firms, family offices and endowment funds are in the race to buy hospitality group Hotel Leelaventure Ltd’s five-star hotels in Goa and Chennai.
Two persons, including one who is directly familiar with the negotiations, confirmed this, adding that the sale of the two properties is likely to be completed before Christmas.
Marquee private equity investors such as the Blackstone Group and Brookfield Asset Management, along with a few family offices and international endowment funds from the US, Europe, West Asia and Singapore have evinced interest in buying the two Leela hotels, currently under the control of financial services conglomerate JM Financial Group’s asset reconstruction firm JM Financial Asset Reconstruction Co. Pvt. Ltd, according to the two persons.
“The Chennai and Goa five-star hotels are two of the finest properties of The Leela Group. Many investors have shown keenness in the two properties. Five of them have been shortlisted. While some buyers intend to completely buy out one of the two hotels, other players are interested in buying majority stakes in both the properties. The deal is in the final stages and is likely to be closed by December,” said one of two persons cited above, on condition of anonymity.
With 206 guest rooms and suites, The Leela Goa, built in 1991, is spread across 50 acres at Cavelossim on Mobor beach in South Goa. It is one of the best performing hotels of the group. The Leela at Chennai was opened in September 2012. The hotel, with 326 guest rooms, is built on 4.8 acres of land.
While the exact size of the deal is yet to be ascertained, the two persons cited above said the Chennai property is valued at around Rs.1,300 crore and the one at Goa is worthRs.200-300 crore.
Replying to an email, a JM Financial spokesperson said, “As a policy, we do not comment on speculation.” The Blackstone Group, too, replied saying, “As a matter of policy, Blackstone does not comment on media/market speculation.” A Hotel Leelaventure spokesperson declined to comment. And, an e-mail sent to Brookfield Asset Management did not elicit any response.
The two hotels were taken over by JM Financial Asset Reconstruction Co. in July 2014 from a consortium of banks led by State Bank of India after the lenders restructured Hotel Leelaventure’s debt (taken for building the two hotels) under the corporate debt restructuring (CDR) mechanism.
“Post the purchase of loans against Leela properties from the banks last year, JM Financial Asset Reconstruction Co. got two board positions in the company. Over the past year, costs of running the hotels have been brought under control to optimise the performance of the hotels and improve margins. Even after the sell-off of the two hotels, the current management at the two Leela hotels is likely to be retained; the way the existing team works will continue and the Leela brand too will be retained,” said the first person.
A senior hospitality consultant, requesting anonymity, said Hotel Leelaventure is desperate to reduce its debt burden and a divestment will create a positive impact on the hospitality and banking sector as a whole as the company features at the top of the list of indebted hospitality firms.
“However, the Leela brand is strong and robust. The international investors would want to retain the Leela brand post sale,” the consultant, who advises several hotel groups, said.
Based in Mumbai, The Leela Group owns and manages eight properties in prime urban locations and holiday destinations across India, including Mumbai, New Delhi, Gurgaon, Bengaluru, Chennai, Goa, Udaipur and Kovalam. New properties are under development in Bengaluru, Jaipur, Agra, Lucknow and Kathmandu, among other places.
On 2 March, Hotel Leelaventure announced plans to sell its properties in Goa and Chennai to cut debt. The company said it plans to divest select hotels while continuing to grow through managing and operating new hotels.
JM Financial Asset Reconstruction Co. paid around Rs.865 crore to the lenders to buy a number of properties of Hotel Leelaventure across India, including the Chennai and Goa five-star hotels. The amount paid by JM Financial Asset Reconstruction Co. was about 20% of the total sum, for loans to Leela hotels. The transaction helped the consortium of banks sell 98% (Rs.4,100 crore of the overall dues of Rs.4,200 crore) of exposure to Hotel Leelaventure.
As per the CDR terms, the company had to reduce its debt through sale of assets.
Troubled loans are usually referred to the CDR cell of lenders after a majority of them approve a recast, which could entail a lower interest rate, a longer repayment period, or the conversion of overdue interest into loan principal.
In 2011, Hotel Leelaventure sold off its luxury hotel Leela Kovalam in Kerala for Rs.500 crore to Travancore Enterprises. In 2013, it sold its IT Park Building in Chennai for Rs.170.17 crore to Reliance Industries.