Hotel Leela plans to raise $160 mn via FCCBs, QIP issue

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Hotel Leela plans to raise $160 mn via FCCBs, QIP issue

Hotel Leela Ventures Ltd is planning to raise USD 100 million via FCCBs and USD 60 million via a QIP issue, Vice Chairman and MD, Vivek Nair, confirms in an exclusive interview with CNBC-TV18. "We require funds for expansion and also for reducing our debt."

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Hotel Leela board okays raising up to $130 mn Hotel Leela sees 85-90% occupancy in Mumbai, Gurgaon ahead ALSO READ See latest News about Hotel Leela See previous management interviews See what other Experts & Brokerages are saying about Hotel Leela Nifty BSE | NSE 28/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news ITC Hotels |

One of the leading players in the Indian hospitality industry, Hotel Leela Ventures Ltd is planning to raise USD 100 million via foreign currency convertible bonds (FCCBs) and USD 60 million via a qualified institutional placement (QIP) issue, Vice Chairman and Managing Director, Vivek Nair, confirms in an exclusive interview with CNBC-TV18. "We require funds for expansion and also for reducing our debt."

Commenting on ITC 's stake in the company, he says, it is a treasury operation. "ITC has never offered to buy stake in Leela."

Here is a verbatim transcript of an exclusive interview with Vivek Nair on CNBC-TV18. Also watch the accompanying video.

Q: Could you share the details of your fund raising plan with us? Will it be a QIP or an FCCB? How much would you look to raise?

A: We are planning to have FCCB and QIP issue. The objective of the FCCB and both these issues would be to fund the expansion of our property and to reduce debt. If you had 10,000 meter of land, you could build 50,000 square meter of a built up building that is increased to 2.25 in the wake of the Commonwealth Games. The Tourism Ministry wanted 30,000 guest rooms to be added to the exiting 10,000 odd in the Star Category.

Therefore, as incentive, the DDA and the Ministry of Urban Development offered this extra FSI to hotels existing as well as new ones. The industry asked for three because in Mumbai and the city you are given 5 FSI in south Mumbai, in the city it is 3.5, but they only gave us 2.25. Therefore, our original program was to build at 1.5 FAR. With a 120 room expansion, we will require funds to fund that expansion. Secondly, we would like to utilize our funds to reduce our debt on the books. These are the two objectives for this issue.

Q: How much will you raise exactly? This is only an FCCB and there will be no QIP or direct equity element.

A: We have FCCB planned separately to the QIP. Two separate instruments will be brought out before March 31.

Q: How much each?

A: We are trying to raise about USD 100 million of FCCB and about 60 million of QIPs.

Q: How are you reading about the stake that ITC has bought in your company because East India hotels and ITC are locked in an interesting situation with the ITC share holding there? Is this just pure financial investment as ITC seems to be indicating or are you worried as a management?

A: The Chairman of ITC has been my friend for the last 25 years. He personally assured me that this is only a treasury operation. They feel our stock is the lowest amongst hotel priced stocks. Therefore, it's the only intention in mind. In any case, we have 53% of total equity and we can go to 55% by March 31 this year which we plan to do.

Q: One more clarification whether or not ITC offered to buy strategic stake at Rs 80 per share any truth to that?

A: Nothing at all. Our sales may even go to Rs 100 once our Delhi hotel at a location called Chanakyapuri which is just two minutes drive from Prime Minister's residence and amidst the diplomatic missions will be made operational. Our Chennai hotel will also be made operational in the first quarter next year. So in FY11-12, our revenue will go upto Rs 1,000-1200 crore as we work in very high gross operating margins in our industry. Close to 45-50% of the market is good and the average Delhi rates are high. Hence, we are very confident of producing great results from FY11-12 onwards.

Q: Your numbers did show a recovery in third quarter. Has the ARR improved?

A: After the economic downturn and November 26 incident in Mumbai, the IT centric destination like Ahmedabad, Chennai and Bombay to extent and the biggest is Bangalore found a great decline in occupancy levels mainly because the IT companies in the US and Europe decided to cut down on travel. For our hotel, there has been the best performing hotel in India for the last four year with the highest average room rate of about Rs 18,000-19,000.

With 85% occupancy of about 80-85%, the Dip being weekends when the foreigners go back but now its come down to 13,000 which is the average daily rate. This is a marked reduction from the 18,000 figure we had earlier. The good news is that occupancies have gone up to about 65-70%. So the revenue per available room has gone down compared to the same period last year. However, we are still operating on 50% gross operating margins. Hence, there are healthy contributions to our internal accruals because of that.