JP Morgan to hold 49% of Bangalore project: Viceroy Hotels

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JP Morgan to hold 49% of Bangalore project: Viceroy Hotels

The Viceroy Hotels’ board is in the final stage to hive off Bangalore project division via slump sale. P Prabhakar Reddy, managing director of Viceroy Hotels says the Bangalore project will ultimately be a joint venture between the company and JP Morgan. “We will be holding 51% and JP Morgan will be holding 49%,” he says.

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The Viceroy Hotels ' board is in the final stage to hive off Bangalore project division. P Prabhakar Reddy, managing director of Viceroy Hotels says the Bangalore project will ultimately be a joint venture between the company and JP Morgan. "We will be holding 51% and JP Morgan will be holding 49%," he says.

In an exclusive interview with CNBC-TV18's Ekta Batra and Reema Tendulkar, Reddy further says, "Initially, JP Morgan is investing 60% under a condition. We will have to give them around 22% of return on the Rs 16 crore that they are investing additional and that we have to buyback 11% stake within three years. However, the final arrangement is that JP Morgan will have 49% stake."

He says that the company has no plans to completely divest their holding. He also hints possibility of bringing in investors in Chennai project as well.

Below is a verbatim transcript of P Prabhakar Reddy's interview with CNBC-TV18's Ekta Batra and Reema Tendulkar. Also watch the accompanying video.

Q: Can you just take us through this hive off of the Bangalore project division. What are the modalities in terms of your board meeting on March 10?

A: March 10 meeting is a follow up of what has been going on for the last couple of months. We have reached the final stage of hiving off of Bangalore hotel into a special purpose vehicle to start with. Once, the hiving off is complete, we expect JP Morgan to invest, pick up 60% stake by investing around Rs 90 crore.

We have already taken approval of the shareholders through postal ballot. We are holding a board meeting on March 10 to complete the business transfer agreement. Post that will pave the way for JP Morgan to bring in money and invest. The Bangalore project will be owned by subsidiary and ultimately, will be a joint venture between us and JP Morgan.

Q: You will be selling off your 60% of your stake to JP Morgan. Is there any kind of plan to completely divest your holding?

A: There is no plan to completely divest our holding. We will be holding 51% and JP Morgan will be holding 49%. Initially they are investing 60% with a condition that we should buyback 11% stake within three years by giving them an 'x' return. However, the final arrangement is that we will have 51% and JP will have 49%.

Q: What is the possible 'x' return that you have possibly entered with JP? What is the amount of 11%? What sort of premium are you working with?

A: We will have to give them around 22% of return on this Rs 16 crore that they are investing additional and that we have to buyback within three years. The lock in period is for one year after one year. Hopefully, we will try and pick up as early as possible after the lock in period is over.

Q: In the board meeting that is scheduled you are also considering increasing the borrowing powers. What is it you are looking to raise by looking of equity - is anything on the anvil?

A: No, we have reached the saturation point so we thought that we should have the leeway not that immediately. We are going in for additional borrowing. However, we are asking for borrowing power of Rs 200 crore more, only as an enabling clause.

Q: Are there any more such deals that you could be in talks with? Or are there any more fund raising that we could possibly expect from Viceroy Hotels?

A: Right now, there are no plans but with are tying with the idea of bringing in some investor in Chennai project as well. Hence, it will be announced as and the development takes place. Right now we don't have any plans. However, we do not rule out the possibility of bringing in some strategic investor in Chennai project.

Q: Would you be looking at getting in only a private equity investor or would you be open to getting in somebody who would have an operational stake in the company or in one of these projects?

A: Since we have already signed operational agreement with Marriott, we cannot bring any other operator other than Marriott. Hence we are only looking for investor who looking forward to investing.

Q: On account of the budget, there has been an increase in the service tax that is applicable to hotels. Have you made any kind of estimate on its impact?

A: It is more physiological impact rather than an actual impact. Nobody will feel happy if they have to shell down more money staying for F&B and for availing F&B services in the hotel. However, ultimately it is the corporate client who will be using the hotel mostly, hence, the ultimate impact is not going to be as grave as it appears to be.