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Leela Palace Chennai readying for November opening
Chennai's newest luxury hotel, situated on the southern end of the Marina beach, is being readied to welcome guests. Sea-facing, the Chettinad Palace-inspired opulent hotel from Hotel Leelaventure Ltd will open early November, just in time to cash in on the peak-season demand.
Rates at the 326-room property, as per a web booking engine, start at Rs 12,500 per night (deluxe sea-facing room), which is higher than the Rs 11,700 per night rate charged by by Taj at the Lands End, a prime sea-facing hotel in Mumbai.
Though delayed by over a year, the launch of the The Leela Palace Chennai (eighth in the company's line-up) is one of the half-a-dozen turnaround initiatives planned by promoters to inject life back into the debt-laden company.
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Leela Palace Chennai readying for November opening
As of March 31, total debt on the company's books stood at nearly Rs 4,300 crore (Rs 43 billion), resulting in a near fourfold rise in net loss at Rs 101 crore (Rs 1.01 billion) in the first quarter this year.
Interest paid during the January-March quarter (Rs 89 crore [Rs 890 milliom]), which doubled compared to the corresponding quarter last year, was 64 per cent of the revenue earned (Rs 138 crore [Rs 1.38 billion]) during the period. The company's promoters, the Nair family, has thus put in place a series of measures to tide over the crisis, assuring stakeholders of a certain reduction in its debt.
The company will raise up to Rs 1,000 crore (Rs 10 billion) through one or more instruments to meet capital expenditure, expenditure for renovation, expansion, brand building and to pursue new growth opportunities.
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Leela Palace Chennai readying for November opening
Leela has also applied for debt-restructuring under the corporate debt restructuring (CDR) mechanism, to ease out the debt burden though its lenders have still not agreed to reduce the interest rate on outstanding loans.
A flash report for restructuring of its debts was approved by the CDR EG (empowered group) in May with January 1, 2012 as the cut-off date. The final restructuring package is under discussions.
"The company is facing a liquidity mismatch as most of its debts are payable in next five years. The company expects to get moratorium on interest and principal repayments for two years and repayment over the next eight years. The company also expects to get reduction of interest rate, even though the lenders would have a right of recompense at the time of exit from CDR," stated the annual report of Hotel Leela Ventures.
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Leela Palace Chennai readying for November opening
Further monetisation of three land assets and an office space are considered by the company, located in Pune, Hyderabad, Bangalore and Chennai. Valuation of these properties exceeds Rs 700 crore (Rs 7 billion), as per market estimates. Commercial property in Chennai is the Leela Business Park, located next to the luxury hotel.
Four or five-star properties in tier II locations are also being explored by the company. In addition, management contracts for nine new properties are actively considered, including a project in Jaipur where the firm has already signed the contract and in the capitals of Bangladesh and Sri Lanka.
The company also owns land in Agra (facing Taj Mahal) and Ashthamudi, Kerala. At both centres, it has decided to build a luxury hotel and resort, respectively, in collaboration with an investor, though it is yet to finalise the deals.
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Leela Palace Chennai readying for November opening
Though the turnaround plan has been put into motion, market watchers are not excited just yet. A Delhi-based analyst tracking the hotel sector stated several of the recently announced plans by Leela were only a repetition of its earlier promises.
"The company's debt in March last year stood at Rs 3,800 crore (Rs 38 billion). Even then it had announced sell-off plans of non-core assets such as land and office space. Not only has the debt increased, but it has failed to get a single buyer for its assets. In the meantime, real estate valuations have further strained," said the analyst.
However Leela's management successfully sold its Kovalam resort last year for Rs 500 crore [Rs 5 billion]actual gain is Rs 415 crore [Rs 4.15 billion]) to a Dubai-based non-resident Indian Ravi Pillai. Hotel Leelaventure continues to manage the formerly state-run ITDC resort, which overlooks the Arabian Sea.
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Leela Palace Chennai readying for November opening
But unlike the successful deal of Kovalam, the company has failed to execute announced plans of selling preferential shares to private equity companies, which would have fetched it Rs 600 crore (Rs 6 billion). The company had been in negotiations with sovereign wealth funds but the deal has failed to materialise.
Further, a planned qualified institutional placement and foreign currency convertible bond (FCCB) of $200 million (Rs 895 crore) failed to take off due to a depressed equity market while its earlier FCCB of $100 million did not get converted into equity and remained as debt.
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Leela Palace Chennai readying for November opening
Presently, promoters hold 56.6 per cent in the company (though 85 per cent is pledged), while foreign institutional investors hold little more than one per cent. Kolkata-based ITC remains the single largest non-promoter shareholder in Hotel Leelaventure with a stake of 13.98 per cent.
"Leela has limited coverage compared to say ITC, Oberoi or Indian Hotels. They are unable to expand under ownership model because their balance sheet looks quite stressed and banks will thus be reluctant to lend to them. Management contracts can bring only fees and not profits," said another analyst.
