Debt ridden Hotel Leela Venture expects to raise Rs 620 crore by selling non-core assets.
The company, which operates luxury hotels and resorts, has a debt of around Rs 4,000 crore on its books.
For instance, it expects Leela Business Park in Chennai to be sold in the next six months and Leela hopes to raise Rs 200 crore from the sale, Vivek Nair, vice-chairman and MD, told CNBC-TV18 on Wednesday.
Hotel Leela also plans to sell land parcel in Hyderabad, he said. The company had 3.85 acres of land at Banjara Hills in Hyderabad, where it had initially planned a luxury hotel, but shelved the plans after significant new supply came up in the area.
It also sold its Kovalam property this year and took it back on management contract.
Lenders recently approved Hotel Leela's corporate debt restrcturing (CDR) package. As per the CDR package, the company will be debt free by the end of the financial year 2013. As a part of the deal the promoters have to bring Rs 200 crore and Nair said promoters have already bought in Rs 100 crore to date.
Hotel Leela had last month announced a fund raising of Rs 1,100 crore, and Rs 100 crore worth preferential allotment of equity to promoter group firm Leela Lace Software Solutions. It also got a 24 months moratorium for outstanding principal amount of Rs 3,000 crore and 23 months moratorium for interest.
It had posted a net loss of Rs 102 crore in the first quarter.
Hotel Leela shares were up near 6% at Rs 35 on NSE in morning trade on Wednesday.
Below is the edited transcript of Nair’s interview with CNBC-TV18.
Q: How will capital and debt look at the end of the year? There is a preferential allotment of equity shares to promoters as well you have negotiated a CDR package with bankers so what is the equity dilution and will you pare down debt with the money – how will your debt look by March 31?
A: The CDR package has been finalised and as part of that, it envisages equity infusion the promoters are to bring in Rs 200 crore out of which we have bought in already Rs 100 crore. That will take our equity to about 64 percent of the total equity of the company; it will be done through preferential allotment of share.
We envisage that once the equity market picks up and hopefully the present trend will continue, we will be bringing in additional amount by way of QIP or FCCB as the case may be and that will bring in another Rs 1,500 crore- Rs 2,000 because the market price being low, we could not convert USD 200 billion of FCCB.
We have redeemed those now, so the gap of that USD 200 million - about Rs 1000 crore will be made up partly by way of promoters’ contributions as well as through QIP, rights issues and FCCB.
We also envisage the Leela business park, which is part of the hotel complex in Chennai to be offloaded. That will be done in the next six months. We expect to do that by December and along with our non core assets – the land parcel in Hyderabad. The hotel industry in Hyderabad is facing a rough time because of local disturbances.
In Pune there is an over built situation as far as the demand supply of rooms go, for Pune we have a joint venture with local developer. In the next three years our share of the JV will come to us and the same in Bangalore also. We have two acres of land next to our hotel so we are planning to put up Leela Residence, so even that amount of the JV will come to us.
Hyderabad will be the plot sale and the two JV – developments in Bangalore and Pune would give us the required equity contribution. All of these will go towards paring of the debt. We have also undertaken to offload our operating properties as the case maybe - like we did Kovalam – we intend to keep our name and have a management contract. We might peruse the asset life strategy, pursued by most major hotel chain – where they operate the property and not own it.
Q: What is the size of the QIP or FCCB and how much will it add to equity? What would you be comfortable with? Would your equity increase by 10 percent, 15 percent mentally what are you prepared for and some ballpark figure that you will get from the getting out of the JVs and the land sale in Hyderabad?
A: Approximately Rs 200 crore is what we expect from the Leela Business park sale in Chennai – about Rs 620 crore from the sale of the non core assets in Hyderabad and JVs in Bangalore and Pune.
Then we have envisaged about Rs 2,000 crore by offloading of our operating assets and then picking it back on management like we did in our Kovalam property and another Rs 1,500 crore of QIP or FCCB or rights issue.
It is a good thing that reforms are now being back on track so the business travelers will come back to our hotels which have really suffered in the last three years because of economic uncertainty in India.
Q: Are you almost getting debt free then in maybe six- eight months?
A: As per the package, that is how it works out at the end of two year moratorium and eight years we are suppose to be debt free.
Q: How business will look? You have said that sentiment has improved – you also have some of your own expansions in place so by the end of March 2013 or March 2014 what kind of revenue growth are you penciling in?
A: On a macro level, the hotel industry did very well between 2005 and 2007. We saw record occupancies and average daily rates, but after the Lehman crisis and the melt down in the US, we truly suffered as industry.
However, because of the buoyancy in the market whole lot of developers and hotel companies started expanding in India. Up to 2007-2008 we just had 5000 rooms being brought in to the inventory we suddenly find that had 20,000-25,000 rooms now being built.
The good news is that we have hopefully short in our county’s as far as hotel rooms are concerned, We just had 120,000 hotel rooms from the one start to five star deluxe category and five star deluxe category only constitute about 15 percent of the total rooms.
This figure of 120,000 even less than what Bangkok or even Las Vegas has that is the reason why our tourist to India is bear 6.2 million compared to 55 million in China and 14 million in Malaysia, Indonesia etc. Unless we increase the inventory of rooms from 120 to another 180,000 to make it to make it to 320,000 we cannot double the arrivals from 6.2 to 12 million, which is what the ministry of tourism wants us to do.