Hotel Leela to sell Chennai, Goa hotels to reduce debt

Another try at cutting its big debt, eroding its margins; JM Financial hired for deal

Hotel Leelaventure, the luxury hotel chain, is to sell its Chennai and Goa properties, to reduce its debt pile of nearly Rs 5,000 crore. It has engaged JM Financial Institutional Securities for the sale.

This is the latest attempt by the troubled chain to reduce its debt. It had made several unsuccessful attempts, including an agreement with a private equity giant for a bridge loan.

The debt has repeatedly eroded its margins. During the recently ended quarter, the company posted a 25 per cent increase in net loss at Rs 125 crore as against Rs 100 net loss in the same period last year. The loss widened due to lower other income and higher finance costs, which stood at 133 crore.

The Leela Goa is the older of the two properties and is bigger than any other of the company. Built in 1991 and touching the beach, it is spread across 50 acres at Cavelossim on the Mobor beach in the state's south. Designed to reflect the Indian and Portuguese heritage, about 39 acres is owned by the company and 11.88 acres leased from the promoter company. The luxury property, second oldest in the line-up, has 206 guestrooms and suites.

The Goa property is also one of the best performing for Leela. In 2013-14, the occupancy was 71 per cent with an average room rate of Rs 15,199 a day, almost double that of its Mumbai property with an ARR of Rs 7,717, according to its annual report.

Opened in September 2012, the Leela Chennai is relatively one of the younger properties. With 326 guest rooms, its Chettinad-style architecture is built on 4.8 acres owned by the company. It overlooks the sea.

On the performance front, the Chennai property has not done well. The annual report says occupancy was 33 per cent last year, with an ARR of Rs 7,317, a drop of 18 per cent when compared to Rs 8,924 in FY13.

The company has in the past engaged in dialogue in offloading the Delhi property, located in the prime area of Chanakyapuri. However, deals have failed to materialise over valuation issues. Though not officially specified, the company was not ready to settle for anything below Rs 2,000 crore.

From being referred to the corporate debt restructuring (CDR) cell of 17 domestic banks to engaging in talks with sovereign funds from the Gulf to tapping the shoulder of wealthy industrialist Ravi Pillai (who bought the Leela Kovalam for Rs 500 crore and renamed it the Leela Raviz), the company has tried all available means. In May, the board of directors approved plans of raising up to Rs 1,000 crore through various means, including issue of equity shares, debentures and global depository receipts in one or more tranches. At least 14 of its 17 CDR lenders, with exposure of about 97 per cent of the total CDR debt (Rs 4,130 crore), assigned these in favour of JM Financial Asset Reconstruction Company. An upfront payment of Rs 865 crore was made by the latter to the lenders, while security receipts of Rs 3,245 crore were given to the banks.

This has, however, brought little relief to its other lenders. For instance the company defaulted on the interest on loan payment to Life Insurance Corporation of India, the second largest institutional shareholder, for three straight quarters.

The company was required to pay Rs 22.5 crore as its first instalment.