Indian Hotels Company (IHCL) intends to bring in a partner to invest in a new hotel that will rise on the Sea Rock land in Mumbai. The Tata Group firm will assume charge of the property under a management contract signed with the partner.
In July, IHCL, which runs luxury properties under the Taj and Vivanta brands, signed a binding agreement for the acquisition of a 14.28 percent stake from ELEL Hotels, paving the way for 100 percent ownership of the holding company, which has a 60-year lease on the Sea Rock land.
IHCL owns the Sea Rock leasehold till 2069, as per a disclosure by the company in its Q1FY21 presentation. Considering it will require at least a year to seek all the required clearances and another 3-4 years to build the property, one-fourth of the lease period, which commenced in 2009, would be lost.
IHCL’s strategy
Speaking to analysts after IHCL declared its June quarter results, Puneet Chhatwal, Managing Director and CEO of IHCL, said: “The Sea Rock and the Lands End (across the road from Sea Rock) will be the next icons for Mumbai, just like the Taj Mahal Colaba. The only question which we would debate or which would not be our choice at this point in time is to use our own capital,”
“Our strategy will be to use some partner to help us build it and we will manage it. That’s what we have been doing. A majority of our hotels in the pipeline are based on that model. We will set the design and planning of it in the foreseeable future — and I mean 12-18 months. We can break ground and start rolling after getting all the permissions,” added Chhatwal.
Given the uncertainty caused by the Covid-19 pandemic, IHCL wants to avoid burdening its balance sheet further. At a consolidated level, the chain’s net debt had jumped 22 percent to Rs 2,328 crore by the end of the June quarter as against Rs 1,915 crore at the end of the March quarter.
During Q1 IHCL raised Rs 500 crore of long-term debt.
Tough quarter
IHCL posted a net loss of Rs 313 crore for the quarter ended June as against a profit of Rs 5 crore in the same period last year. In all, 14,000 rooms of the company had become operational and about 5,000-6,000 remained shut by the end of July, as per company disclosures.
Occupancy rates across India by the end of June settled at 21 percent, which is a 67 percent decline from last June. Revenue per available room (RevPar) was down 81 percent to Rs 652, as per data shared by HVS Anarock Hotels & Hospitality Review.
IHCL did not disclose the acquisition price for the 14.28 percent stake held by the Nanda family-controlled ELEL Hotels in the Sea Rock holding company. However, a disclosure in the hotel chain’s 2019-20 annual report said that it would pay Rs 250 crore for the deal.
This values the property at over Rs 1,666 crore, which is more than double the Rs 800-crore valuation it got in 2009 when IHCL bought the initial stake.
The Mumbai-headquartered company is also fighting a public interest litigation (PIL) over the use of floor space index (FSI) for the Sea Rock property. Environmental clearance is also awaited for the project.
The combined inventory strength (Taj Lands End + the new hotel on Sea Rock land) would be at least 1,000 rooms, multiple ballrooms, event spaces and convention centres.
Chequered history
Sea Rock, originally built by the Luthria brothers through ELEL Hotels and Investment Limited (EHIL), opened in 1978 in collaboration with the Welcomegroup of the ITC chain. In the 1980s, it tied up with the prestigious Sheraton and was known as the Welcomegroup SeaRock Sheraton.
It was the favourite haunt of film stars and airline crew. A banquet hall, business centre and executive lounge gave it the tag of a business hotel, as well.
On March 12, 1993, the hotel’s destiny changed as serial blasts ripped through multiple landmarks in Mumbai, including the Sea Rock. The hotel was damaged and its renovation plans led to a 14-year legal battle between EHIL and ITC Welcomgroup. The dispute was finally settled out of court.
IHCL acquired Sea Rock in 2009, and planned to build a landmark as iconic as the Taj Mahal Palace in Colaba. More than a decade on, this is its latest attempt to raise a property on the Sea Rock land.
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