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India's Hotel Leelaventure Tries to Script a Turnaround Story

Working to Pay off  Debt by Selling Non-Core Assets and Finding Investors

By P.R. Sanjai, Mint, New DelhiMcClatchy-Tribune Regional News

Feb. 18, 2013--MUMBAI -- "This too shall pass," said Vivek Nair, the new chairman and managing director at Hotel Leelaventure Ltd.

Nair, 61, is regularly in touch with the chairmen of 18 banks as his firm was referred to corporate debt restructuring (CDR). Hotel Leelaventure, which was a debt-free firm in 2004-05, now has Rs.4,750 crore in debt while the last fiscal's revenue was just Rs.571.09 crore.

Debt-laden firms are usually referred to the CDR cell of the lenders after a majority of them approve a recast, which could entail a lower interest rate, a longer repayment period, or the conversion of overdue interest into the loan principal.

However, Nair and his younger brother Dinesh are scripting a turnaround by raising around Rs.3,500 crore through the sale of non-core assets, stakes in individual luxury hotel projects, and by forging joint ventures with hotel developers and other ways to pay off the debt. The company also plans to slow expansion. It will sell its equity in hotel projects in Chennai and Bangalore to financial investors, retaining 26-30%.

The change from an asset-heavy model (where Hotel Leela owns hotels) to a asset-light model (sells partial stake in the existing hotels and enters into management contracts) comes at a time the next generation of the Nair family is taking over the affairs of the company.

On 7 February, C.P. Krishnan Nair, 91, who founded the firm in 1981, stepped down as chairman and Vivek Nair was elevated to chairman and managing director and Dinesh Nair as co-chairman and managing director.

Vivek Nair will take care of marketing and finance while Dinesh Nair will be in charge of customer touch points, which includes interiors and staff, of hotels and operations. Father Krishnan Nair was re-designated as chairman emeritus and founder chairman. Krishnan Nair, in 1958, set up a lace-manufacturing unit in Mumbai and got the idea to set up a hotel when an international airport was coming up near his bungalow in Mumbai.

The company has some breathing space, and execution is now the key, according to Narayan K. Seshadri, chairman, Tranzmute Capital and Management Pvt. Ltd, a business advisory firm.

"The new management should come together to sell non-core assets and find investors," Seshadri said. "At the end of the day, it is a good brand, with good assets, though the market is not good at this point of time."

Hotel Leela posted a loss of Rs.97 crore in the December quarter and, as the operating environment continues to remain challenging because of low demand, it is a tough job for the company to operate with such a high level of debt, Rashesh Shah, an analyst at ICICI Securities Ltd, said in a 11 February report.

"We admit that the debt became unmanageable. But now we are confident that we can overcome this crisis as we have seen many ups and downs in our life," said Dinesh Nair, 57. "We are on the verge of signing agreements for selling partial stakes in hotels and selling non-core assets."

On 11 August 2011, Hotel Leela had sold its iconic property on Kovalam beach in Thiruvananthapuram, Kerala, for Rs.500 crore to non-resident Indian Ravi Pillai, who gave the contract to run the hotel to Hotel Leela for 30 years.

"We are in talks with financial investors for selling at least a 70% stake in our luxury properties in Chennai and Bangalore, which is expected to fetch Rs.2,000-2,200 crore," Vivek Nair said. "We will create a special purpose vehicle to facilitate this sale. We will not go for an outright sale, like our Kovalam property, but we would be looking at selling a partial stake in all properties, barring New Delhi."

The company's 357-room luxury hotel in Bangalore is currently generating the highest operating margin. The Chennai hotel has 326 rooms. Mumbai's Leela hotel, near the airport, has 392 rooms.

The company also has plans to raise Rs.1,000 crore through a qualified institutional placement when the market is conducive for such a sale.

Dinesh said his company will announce some deals shortly, while the hotel company has advanced in selling its non-core assets.

The selling of non-core assets started in December when Hotel Leela sold its business park in Chennai to Reliance Industries Ltd for Rs.172 crore to reduce debt.

Now, the company has shelved a plan to build a luxury hotel at Banjara Hills, Hyderabad, in its 3.85 acres of land and proposes to sell the land, which is expected to fetch Rs.125 crore.

Similarly, in Pune, too, the company shelved plans to build luxury hotels, and it has decided to sell or jointly develop the land of 34,102 sq. m that is expected to fetch Rs.150 crore. The company has signed a joint development agreement with local developers for the surplus land of about two acres, next to The Leela Palace Hotel, in Bangalore for developing high-end residences.

"As part of the CDR programme, the promoters will infuse Rs.200 crore. Out of this, Rs.100 crore had already been pumped in and another Rs.100 crore will be infused before the end of the fiscal," Vivek Nair said.

At present, Leela Hotel owns and manages eight properties in Mumbai, New Delhi, Gurgaon, Bangalore, Chennai, Goa, Udaipur and Thiruvananthapuram.

"In hindsight, it was a great decision to go for aggressive expansion before the Lehman crisis as now we have a pan-India presence from a three hotel firm in 2008," said Dinesh Nair. "In any case, we are not strangers to tough times."


(c)2013 the Mint (New Delhi)

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