American private equity fund Marigold Capital and Investments, a fund specialising in buying debt-ridden hotels and commercial real estate properties and turning them around, will buy Leela Group’s 326-room hotel in Chennai for around Rs 700 crore, two people with direct knowledge of the development said.
“The deal with Marigold is in the documentation stage where the final agreement will be drafted,” one of the two persons quoted above said. JM Financial, an investment bank, is advisor to the sale.
ALeela spokesperson did not respond to an emailed questionnaire until press time. Marigold did not respond to a questionnaire mailed to an address sourced from its website. The Leela Group, started by the late Captain Krishnan Nair in 1987 in Mumbai, has been weighed down by debt after it expanded its chain to Delhi, Chennai, Bengaluru, and Goa in 2000. The group, which built its first property on a leased land from the Airports Authority of India (AAI) in Mumbai, was unable to raise about Rs 2,400 crore in 2014, despite selling some of its properties as part of meeting the corporate debt restructuring (CDR) programme by lenders.
Once the CDR failed, lenders decided to sell the loans to Asset Reconstruction Companies (ARCs).
In 2014, JM Asset Reconstruction Company paid .`865 crore to lenders which is roughly 20% of the outstanding loan and the rest Rs 3,245 crore was paid as securities receipts which get extinguished when they repay the loans. ARCs, which buy loans from lenders at a discount, are armed with the same rights as that of the lenders and hence can restructure the loans, settle accounts with borrowers, or enforce the securities by selling the assets and repay the loans to lenders.
JM ARC, which purchased loans at a discount, has decided to sell the assets of the company and repay the loans as the future cash flows of the hotel chain was inadequate to restructure the loans.
