Berggruen Holdings India, a subsidiary of New York-based investment company Berggruen Holdings, has announced that it is seed-funding a non-luxury hotel chain in India.
The company is prepared to make a commitment of up to $100 million of equity per transaction. The privately-owned parent company holds net assets exceeding $1.5 billion and invests internationally in a range of asset classes that include private equity funds and real estate.
"The newly-formed hospitality company will follow an own-and-manage strategy," said Kabir Kewalramani, managing director, Berggruen Holdings India.
The company, which is awaiting its christening, will look at both acquisitions of existing properties and greenfield projects.
"To start with, we might be forced to look at only greenfield opportunities because valuations of existing properties today are highly overestimated," adds Kewalramani.
The company hopes to be a major player in the mid-range segment, owning and managing 100-room, full-service hotels operating in the Rs 1,000 to Rs 2,000 pricing segment. The hotels will be spread across tier-I, II and III cities with a mixed focus on industrial, business and tourism centres.
"The mid-range segment is the obvious choice for investment because it is so highly fragmented and underserved," noted Kewalramani.
The company is currently in the process of assembling its top management team and expects its maiden property to be operational in the next 14 to 16 months.
Traditionally, the hospitality sector has not been the favourite of foreign investors, attracting only 1 per cent of total FDI inflows ($10.3 billion) into the country last year, according to an unconfirmed industry estimate.
But the non-luxury segment, in particular, has been perking up with more and more investors spotting the demand-supply imbalance and the spurt in domestic travel and growth in spending among middle-class Indians.
Last week, India Hospitality Corp raised $100 million (about Rs 460 crore) through an initial public offering at the London Stock Exchange to target multiple acquisitions in India's hospitality, leisure and tourism industries.
The funds raised made IHC the largest special purpose acquisition vehicle focused on India. IHC would also focus only on mid-range business and tourist class hotels. Hero Honda's Pawan Munjal has been enlisted to IHC's board of directors.
"In five years, the mid-range segment will be competitive," said Kewalramani, adding, "But until then, it's a level-playing field and no brand that's too far ahead to catch up with. So it's a fair management and execution play."
According to recent estimates of the World Travel & Tourism Council, the demand in Indian tourism will grow at 8.8 per cent over the next 10 years, which would place the country as the second most rapidly growing tourism market in the world. Kewalramani expects that this is just the beginning of a substantial influx of foreign investment into the sector.
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