Tata Sons-controlled Indian Hotels Company (IHCL) and its Singapore partner GIC has identified seven to eight properties for a buyout possibility, a top IHCL official has confirmed.
In May, IHCL – the owner of Taj Hotels and Ginger brand – announced a tie-up with the sovereign wealth fund to acquire properties in luxury, upscale and upper upscale categories in India, for which it has earmarked Rs 4,000-crore investment over three years.
Speaking to analysts Puneet Chhatwal, managing director – IHCL, said, “We are in the process of identifying a list of 7 to 8 assets. We are looking at several distressed assets. Hopefully within the next three months we will be able to announce (the buyout of) at least one asset if not two”.
The equity contribution from IHCL will be 30 percent, and the balance will be contributed by GIC. The acquisitions will be housed in a separate special purpose vehicle (SPV) managed by IHCL.
IHCL’s own properties will also be looked at for acquisition by the SPV. This way, the Mumbai-based company intends to bring down its debt which stands at Rs 1,975 crore (net debt). IHCL is aiming to reduce debt to below Rs 1,000 crore. However, it has not provided any timeline for it.
But, presently, IHCL is refraining from selling any of its assets considering the sluggishness in the market.
“One thing is very clear. For our own assets we don’t think it is the right time to monetize them because the timing has to be right. We want to do it when the fundamentals are looking much stronger than they do now,” added Chhatwal.
The company has been struggling to bring down its debt since the past few quarters. At the end of the fourth quarter of the last financial year, IHCL’s consolidated net debt stood at Rs 1,784 crore while at the end of the third quarter in 2018 it stood at Rs 1,999 crore.
Under Indian Accounting Standards (Ind AS), IHCL’s consolidated debt position stands at Rs 3,912 crore, which includes the lease liability of Rs 1,937 crore.
In the first quarter of 2019, IHCL monetized non-core assets to raise Rs 35 crore. If any further monetization takes place in 2019, it will be used to reduce debt, the company’s CFO Giridhar Sanjeevi said.
As of June 2019, IHCL’s worldwide inventory stood at 18,127 rooms spread across 151 hotels. About 15 percent of that inventory or 2,727 rooms is based outside of India. Management contracts account for 30 percent of the inventory. IHCL has 4,500 rooms in the pipeline.
As for capital expenditure (capex), IHCL is looking at between Rs 300-400 crore in 2019. During the first quarter of 2019, the company incurred capex of Rs 90 crore.
“We look at anything between Rs 300 crores to Rs 400 crores. It would be fair to assume that if our revenue for example is around Rs 8,000 crores, not what we report, this includes all management contracts (then) 4-5 percent of that revenue is approximately the capex”, added Chhatwal.