The Leela Group to sell Chennai and Goa luxury hotels to pare debt

ONE of the country’s iconic hotel brands, The Leela Palaces, Hotels and Resorts, and the company that controls it (Hotel Leelaventure Limited, henceforth mentioned as The Leela Group), have been struggling with debt for quite some time, but the industry grapevine is abuzz with whispers that the luxury chain is selling two significant assets to turn around its fortunes.

The Leela Group, which sold its Kovalam property in 2011 for Rs 500 crore, is in the process of selling two other hotels in its portfolio. If rumours are to be believed, the two hotels are the Leela Palace Chennai and The Leela Goa. No one within the group was willing to speak when contacted by BW Hotelier, citing a non-disclosure clause, but we have heard that negotiations are on and due diligence is being done for both properties.

The company’s objective is to wipe out a considerable amount of the debt which the Leela group is struggling under, even with rising revenues.

According to an ICICI Securities Ltd report dated June 5, 2014, the group’s total debt stood at Rs 4,976 crore in FY14. The Leela Group’s annual interest commitment is said to be over Rs 500 crore, while its estimated turnover is Rs 822 crore, so the going it still very tough. A significant reduction of debt is desperately needed, the report states.

The Leela Group got into a high debt situation after opening its luxury hotels first in Chanakyapuri, New Delhi, and then on the Adyar Seaface in Chennai. The two hotels set the group back by Rs 2,900 crore. The high capex in these two properties ’ averaging Rs 5 crore per room ’ coupled with moderate market growth has led to heavy losses over the last two years. The group’s combined net loss, according to ICICI Securities, now stands at Rs 875 crore.

To pare its debt, the company first sold its Kovalam property, but it did not help much. In 2013, the group executed an agreement for sale with Reliance Industries for the Chennai IT Park. The deal was pegged at Rs 170.17 crore.

If the sale of the Chennai and Goa hotels go through as planned, there is hope that The Leela Group will eventually get back into the black.