A proposal to restructure the debt of Hotel Leelaventures, the luxury hotel chain, has been turned down by lenders including State Bank of India (SBI), India's largest. However, the hotel company said most lenders were agreeable to the terms and they expected assent soon.
The Mumbai-based company, which runs properties under the brand of The Leela Palace Hotels and Resorts, has been reeling under debt of a little more than Rs 4,000 crore.
Sources in the know said at the meeting of the Corporate Debt Restructuring (CDR) cell last week, the lender consortium did not accept the terms. By CDR rules, at least 60 per cent of the lenders in the consortium representing at least 75 per cent of the debt due for restructuring have to agree on the terms.
Some of the lenders, said these sources, were not sure of the viability of the high-cost properties in New Delhi and Chennai. The matter is due to come up again before the CDR cell, with revisions.
The total exposure of lenders to the Krishnan Nair-promoted hospitality company is Rs 4,295 crore. Prominent lenders include SBI, Syndicate Bank, Bank of India and Indian Overseas Bank.
"The company is in discussions with the lenders. While most of the lenders have conveyed their approval for admission into CDR, some lenders are still reviewing. We expect to get their approval in a couple of weeks," the company's spokesperson told Business Standard.
Due to high payouts as interest subsequently impacting its margins, the company's board had decided to apply for restructuring under the CDR mechanism in February this year. The company’s interest cost went up five times to Rs 111.6 crore in the third quarter ended December 2011, from Rs 20 crore during the same period of the previous year. This was a result of borrowing for the New Delhi hotel.
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The company has been trying to reduce debt for some time through sale of land, properties and hotels. It has also held talks with private equity companies. It recently got a nod from the high court for selling its Kovalam property to Travancore Enterprises, which fetched it Rs 500 crore. Leela had acquired the Kovalam property in 2005 for Rs 150 crore.
The company reported a net loss of Rs 99.7 crore for the third quarter. During the same period of the previous year, it had posted a profit of Rs 22 crore. The company is expected to announce its financials for the final quarter in the coming month.
Depreciation cost more than doubled to Rs 25 crore and employee cost increased to Rs 48.9 crore, compared with Rs 27 crore in the third quarter of last financial year. Net sales, however, increased 22 per cent to Rs 178 crore, from Rs 146 crore.
A report from rating agency Icra stated, “The current cash losses and stretched capital structure remain a concern. The board and its lenders have recently approved the restructuring of the company’s debt under the CDR mechanism. Under these circumstances, funding for new projects could become challenging. However, steps such as sale of the Kovalam hotel to raise funds is a positive.”
It added: “The New Delhi property is in the initial stages of operations, with less than one full year of operations. High interest costs on borrowings for the New Delhi hotel have led to heavy losses for the company during the the last three quarters.”
Earlier, a promoter group company had released 1.64 million shares from being pledged. Pledged shares of promoters were 92.2 million, accounting for 23.8 per cent of the total shares of the company, the company had told the stock exchanges.
"Further the company also expects income from the sale of residential property in Bangalore. The company entered into a joint development agreement with Bangalore-based Prestige Estate Projects in July 2011 for development of owned land adjacent to its luxury property in Bangalore,” added the Icra report.
The company has also been planning to unwind some real estate investments and had even roped in an investment bank, Ambit, last year to advise on bringing in private equity players to infuse equity into the company.