New Delhi, The game is afoot at Leela Hotels.
As reported earlier by IANS, Dubai billionaire Rashid Al Habtoor had made a bid of Rs 4,200 crore for the stressed asset. With four top-of-the-line properties — Delhi’s Chanakyapuri, Bangalore, Chennai and Udaipur nestled along Lak Pichola’s banks — up for grabs, the race is getting murky.
The new deal structure is predicated on these four properties changing hands, even as Mumbai Leela remains outside the ambit of the deal.
Sources close to developments revealed that the Habtoor consortium has been asked to deposit $115 million as earnest money, while a Thai Group Minor International also in contention for the same assets has been asked to cough up a similar amount.
Two of Leela’s other marquee properties – the iconic Leela Resort in Goa was sold to Lord Bagri for Rs 750 crore, while the Kovalam Hotel was disposed of some years ago to Travancore Enterprises, owned by Dr B. Ravindran Pillai, for Rs 500 crore (2011).
The Nairs have been grappling with debt issues (Rs 3,799 crore at the end of March 2018) for sometime now and have been seeking a white knight for survival. Hotel Leela Venture Limited (Leela Hotels) is a stressed asset.
After the failure of its corporate debt restructuring plan in 2014, the Mumbai-based hospitality company transferred loans from 14 creditors to Nimesh Kampani-owned asset restructuring firm JM Financial ARC (JMARC). In September 2017, it allotted over 160 million shares worth about Rs 275 crore to JMARC on conversion of debt to equity. JMARC owns 26% in Hotel Leela Venture.
After ARC JM Financial (JMF) took over the loan portfolio, it converted 26% of the debt into equity and the balance 25% equity is with public and 49% with promoters Nair family.
Brookfield Asset Management of Canada pitched for its acquisition in 2018. However, Kampanis rejected all the bids and retained only Brookfield in the fray who conducted due diligence for the said takeover. As part of this deal, a large parcel of land in Agra designated for another Leela Hotel will go to Brookfield.
At the last minute, in November 2018, Brookfield changed its terms of acquisition and asked for purchase of only four hotels (Delhi, Bangalore, Chennai, Bangalore) and excluded the flagship Leela Palace Bombay because the hotel had a Supreme Court judgement of liability payment of Rs.500 crores dues to be paid by Leela to Airports Authority of India and also because Leela Bombay has a powerful Labour Union which is controlled by Shiv Sena.
Earlier Brookfield had committed to takeover the ailing public company Hotel Leela Venture Limited. However, in asset sale, they would just takeover the assets, i.e. four hotels of Delhi, Bangalore, Chennai, Udaipur, leaving the shareholders (general public who own 25%) high and dry as the public company would be rendered worthless.
In January 2019, an Arab investor Rashid Al-Habtoor from Dubai, submitted a bid of US$ 575 million to the Finance Minister Arun Jaitley with copies to State Bank of India and JM Financial Services to takeover the public limited company and infuse funds as equity into the company, however, JMF demanded 20% of the acquisition price (US$ 115 million = Rupees 800 crore) to be deposited as EMD (Earnest Money Deposit).
Another reputed hotel chain from Thailand — Minor International backed by investment firm Trinity White City Ventures — also submitted their bid, a mix of equity and debt, to JM Financial in January 2019 for acquisition of the public company. However, they too were asked to deposit 15 per cent of the bid value/acquisition price as EMD.
Banking sources have stated that Brookfield may not have deposited even a single rupee as EMD and the entire exercise is shrouded in secrecy. Adding to the complexity of this calculus, MP Subramanian Swamy tweeted — This Gulf tycoon wants to buy Leela Hotels, writes to Arun Jaitley. Be careful, FIPB corruption.
While he has raised Cain with this tweet, it is not clear who the real culprits are in this mystery drama.
Not only lender banks have loaned over Rs 3,800 crores to Hotel Leela Ventures but also there is a Supreme Court judgement against Leela hotels for payment of Rs.500 crore. Brookfield has found a way to bypass this payment of Rs 500 crore by not buying the Leela Palace Bombay asset.
The Mumbai property of Leela also faces closure and attachment by Airports Authority of India since the company is unable to pay Rs 500 crores from its resources as it is an NPA and does not have surplus funds for payment of this obligation. Thus it is a matter of time before the hotel in Mumbai faces closure and more than 1,200 employees and their families of Leela Mumbai lose their jobs and livelihood.
Of the money due to the banks, sources claim that after the hair cut – Rs 2,700 to 3,000 crore or thereabouts – would be the right amount to be paid if one continues to exclude Mumbai but include the Agra land parcel.
Ordinarily SBI and other lender banks would not allow any bidder to avoid payment of Supreme Court ordered dues nor would the lender banks be oblivious to the interests of small public shareholders, which is what happening in this case, and it is believed that Brookfield has almost acquired this asset despite the presence of two other suitors without any bidding process nor payment of EMD which was asked from the other bidders.
