Lender JM Financial Asset Reconstruction Company (JMFARC) is keen to retain about 10% of the debt-hit hospitality company, Hotel Leelaventure, even as exclusive talks with prospective buyer Brookfield Asset Management move to an advanced stage, four people familiar with the developments told ET.
The Canadian private equity major is looking to pick up the bulk of JMFARC’s debt in the chain. With its hotels portfolio spanning across Delhi, Mumbai, Chennai, Udaipur, Gurugram and Bengaluru, the luxury hospitality chain’s debt exceeds Rs 3,000 crore.
“The ARC is optimistic about the hotel chain’s turnaround with Brookfield coming on board and, therefore, would like to retain a certain part of the stake to get an upside later. For a long time, they have held the debt and now would like to get a piece of the value creation too,” said one the persons mentioned above.
In 2014, Leela’s lenders with exposure of 95.6% of the debt had transferred the loans to JMFARC. One lender, which accounted for about 1% of the debt, assigned that to Phoenix ARC.
In June this year, Hotel Leelaventure’s board had approved the enabling provision to issue up to 125 crore equity shares in one or more tranches to JMFARC, which currently holds most of its debt. The potential share issue could have hiked the ARC’s stake in Leelaventure to 75% from the current 26% but the proposal was not approved during the company’s annual general meeting held on August 20.
Brookfield Asset Management and Dinesh Nair, managing director of Hotel Leelaventure, declined to comment. An email sent to JMFARC went unanswered until the publication of this report.
People familiar with the matter said Brookfield, a long-term investor known for turning around businesses, will work closely with the Nair family. Earlier, a consortium of investors including Blackrock, SSG Capital and RB Capital had also been in the fray. Industry sources point out that the potential stakeholders in the deal had also approached American hotel chains Hilton and Marriott for partnerships. “The discussions with both the chains were at the global level,” said another person with direct knowledge of the matter. Both Marriott and Hilton declined to comment.
Until a few months ago, the economic value of the Leela portfolio was pegged by some potential investors at about Rs 5,000 crore, according to a source. “The Mumbai hotel was estimated at about Rs 200 crore, Chennai at Rs 650 crore and the rest included hotels in Bengaluru, Delhi and Udaipur,” he added. This month, the company informed BSE that it defaulted on payment of the principal redemption amount of Rs 22.5 crore on secured redeemable, nonconvertible debentures issued to LIC and due on September 30.
In December 2008, the company had issued secured redeemable non-convertible debentures on a private placement basis, aggregating to Rs 90 crore, to LIC. Hotel Leelaventure’s standalone net loss widened to Rs 66.7 crore for the quarter ended June, compared to Rs 23.6 crore for the corresponding period of the previous financial year on account of a rise in expenses. It posted standalone total income of Rs 159.2 crore, compared to Rs 152.9 crore for the same period in the previous fiscal.
Brookfield, which had been looking out for hospitality assets, made its first investment in India in 2013 with the acquisition of Unitech Corporate Parks (UCP). It has since then invested around $5 billion. To date, Brookfield has put together a portfolio of commercial properties spread over nearly 24 million square feet in India. In addition, Brookfield, particularly its private equity arm, is now looking to expand to residential real estate in India.
Source: Economic Times