14 February 2019: Brookfield Asset Management, one of the world’s top infrastructure and real estate investors, is nearing a deal to acquire most of the assets of the debt-laden Hotel Leelaventure.
The transaction envisages the separation of all properties — except the luxurious Mumbai unit — from Hotel Leelaventure into a new private company in which Brookfield will own controlling interest, people directly aware of the matter said.
Besides the Mumbai asset, the troubled hotel chain runs a network of eight properties. The listed Hotel Leelaventure will be debt-free (other than the contingency liabilities on the Mumbai property, which is fighting a law suit with Airports Authority of India). The demerged entity will assume a debt of just under Rs 4,000 crore.
The acquisition, which TOI reported on September 3 last year, is awaiting final nod from one of the lenders. While negotiations have considerably progressed between Brookfield and Leela’s main creditor JM Financial Asset Reconstruction Company, the latter has parallelly moved the company law tribunal to initiate bankruptcy proceedings against the hotel operator.
JM holds 26% of Leela and controls 96% of its Rs 6,164-crore debt. The promoters, the Nair brothers, own 47% of Leela, but 94% of their stake is pledged. Another prominent shareholder of Leela is homegrown rival ITC with a 7% stake. The deal implies no equity value for Hotel Leelaventure, and the carve-out transaction, which requires shareholder approval, will be keenly watched. The promoter family has been pushing for a deal in the listed company.
LIC has about 3.47%. Retail investors, including NRIs, hold another 11-12% in the company.
When contacted, JM Financial and Brookfield declined to comment. Hotel Leelaventure CMD Vivek Nair could not be reached for immediate comments.
Brookfield will keep the Leela brand name and the original promoter family will be associated with the carved-out entity.
Details in this regard are being worked out. All the upcoming properties of Leela, mostly through management contracts, will also be operated by the new Brookfield company.
If Brookfield acquires Leela, it will be one of the largest investment actions in the hospitality sector. Recently, American rival Blackstone bought the bankrupt Golden Jubilee Hotels, which owns the Trident in Hyderabad and an under-construction Oberoi hotel, which is also in the same city.Blackstone has built a network of five-six hotels and is stringing them together into a hospitality platform.
Global investors like Blackstone and Brookfield have been bullish on commercial real estate with stable yields — rent-yielding office space and shopping malls being the other parts of the story.
Leela has been hit by losses, debts and competition, among others. The company’s losses for the nine months of fiscal 2019 widened to Rs 89 crore from Rs 7 crore in the same period of the previous fiscal.
Industry trackers said that Leela used high-cost capital to develop new properties, but found it hard to service the debt as returns failed to meet its expectations.