 "Big-ticket hotel transactions only if asset prices dip")
Even as around 30 branded hotels and another 40 non-branded properties and land parcels are on the block in the hospitality industry, experts say it may turn out to be another year of wait and watch for big-ticket transactions unless the economy improves and the asking prices of most of these assets come down.
For most companies, the prime reason for selling property is to cut the debt burden. Leela Hotels, for instance, has been undergoing a corporate debt restructuring for its Rs 4,300 crore debt and has to finish the process by March 2014. Experts say the hotel chain would need to get some of its assets off the shelf.
Many transactions have been stuck due to high asking price by the owners, in times when returns in hospitality have not been rewarding, to say the least. “The seller wants to get back at least the price he invested. No transactions are likely to happen on profit since buyers are in a mood to bargain. There could be distress sales now,” said Ajay Bakaya, executive director, Sarovar Hotels group.
Even if prices dropped, there are additional challenges like political uncertainties, falling rupee and policy paralysis. Buyers have been hit by a negative sentiment and are weighing their investment options between India and elsewhere. “There are concerns about the larger macro- economic scenario and deals will start only when there is clarity on this issue. Policies are not well defined, all the rules that govern your investment are just so fluid,” said Kaushik Vardharajan, managing director, HVS India.
Arranging funds has also not been easy. For example, DLF’s Aman hotels deal with its founder Adrian Zecha had to be called off over valuation and funding issues. Real estate company DLF has also been trying to reduce its debt burden by hiving off its non-core business including assets in hospitality sector. “Hotel is a long term business. The gestation period is long. Several real estate companies have burnt their fingers after having invested in boom time,” said K B Kachru, executive vice president, Carlson Hotels.
In times when the room supply has outpaced the demand and average room rates have remained stagnant, hotel chains have been struggling to stay afloat. However, for long term investors, this is a good time to buy assets. Companies like Samhi hotels and Ireo have invested in the Indian hospitality sector and have accumulated funds for more such opportunities. Samhi, owned by early investors Equity International and GTI Capital together have agreed to invest around $100 million in the firm’s expansion plans.
This is also the time, when several private equity investors are staring at the end of their investment horizon in the hospitality sector. “There will be some forced exits. They (PE firms) will have to take a haircut in order to make these deals happen. If they have the luxury to hang in there, they will. But if that option is not there then they are between the rock and a hard place,” a senior hotel industry expert said.
After Goldman Sachs planning to exit its Four Seasons investment in India, more private equity investors are looking to offload their investments . Credit Suisse investment of Rs 220 crore ($55 million) in the Park Hotel made six years ago in 2007 is expected to find its way out soon this year.
Besides, Kotak Private Equity too, is keen on exiting its investment of Rs 11 crore in Pride Hotels group this year. “We are planning to go for public listing this year. Our PE investor could wait till then to decide on exit,” said S P Jain, managing director, Pride Group of Hotels.
It is not going to be easy to exit in the current market situation, said an analyst. Most private equity investors had huge expectations from the sector which have obviously not been met.