Leela Palaces, Hotels and Resorts
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Selling off assets
2019: Brookfield, Canada, buys Leela Delhi, Chennai, Udaipur, Bengaluru, Agra
Brookfield Asset Management, one of the world’s top infrastructure and real estate investors, has acquired the properties of debt-laden Hotel Leela Venture in Delhi, Chennai, Udaipur, Bengaluru and an upcoming hotel in Agra in a Rs 3,950-crore deal. Brookfield has also acquired rights to the Leela brand from the promoters, the Nair brothers Vivek and Dinesh, for the hospitality business in what is one of the largest buyouts in the industry.
The sale of the iconic luxury hotel brand comes about seven years after it entered the corporate debt restructuring process in 2012 in the latest instance of unravelling of a business group in India Inc. Leela’s debt burden was largely driven by its acquisition of expensive properties in Delhi in the run-up to the 2010 Commonwealth Games.
Assets being sold account for 88% of Leela’s total net worth
But the company, whose first hotel was started by the late C P Krishnan Nair in Mumbai in 1986, found it hard to service the debt as returns failed to meet its expectations. The acquisition is being done through a Singapore-registered affiliate of Brookfield, which has $350 billion under management globally. The deal is expected to close in 3-6 months and the promoters have agreed to vote in favour of the transaction.
The acquisition, which TOI reported on September 3 last year and on February 14 this year, will help make Leela a debt-free company.
The assets being sold accounted for 80% of Leela’s revenues of Rs 743 crore in FY18 and 88% of its net worth, Leela said in a filing with stock exchanges. After the deal, Leela will continue to operate the property in Mumbai — over which it is fighting a lawsuit with the Airports Authority of India — but Brookfield will have the first right to purchase it in future. Leela will own some land in Hyderabad besides some joint residential projects with Prestige in Bengaluru.
As a part of the transaction, Leela is also transferring the hotel management business to the new entity while it will enter into a services agreement for the Mumbai property. Leela Lace, a privately held unit of the group, will also transfer the lease of Bengaluru property to Brookfield. Transaction includes transfer of all “intellectual property” by promoters for Rs 150 crore and providing “business expansion services” to Brookfield for Rs 150 crore. Brookfield and promoters will also enter into a JV for certain development projects, which the company did not specify.
“The Leela is rated amongst the top hospitality brands in the world and I am confident that the brand will receive a boost and be further strengthened and continue to be known for its world-class services,” said Vivek Nair, chairman and MD of Hotel Leela Venture, in a statement.
Leela’s main creditor, JM Financial Asset Reconstruction, holds 26% of Leela and controls 96% of Rs 6,164-crore debt. Promoters 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. There is no change in the shareholding of the company after the deal. Shares of Leela closed atRs11,up marginally by 0.9% on NSE on Monday, giving it a m-cap of about Rs 700 crore. At peak in 2006 its shares traded above Rs 80.
Leela had sold two properties in an attempt to repay the debt. It sold the luxury hotel in Kovalam, Kerala, for Rs 500 crore in 2011 to non-resident Indian Ravi Pillai and one in Goa for Rs 725 crore to Ceres Hotels, an arm of Malaysia’s MetTube.