Hospitality firms look at one-time debt restructuring as moratorium ends

On account of being highly leveraged, 15 per cent of the total 160,000 rooms are at a risk of being shuttered forever according to hotel industry estimates

Hospitality firms sitting on large debt piles are now looking to go for a one-time restructuring, with the moratorium period now over.

On account of being highly leveraged, 15 per cent of the total 160,000 rooms —nearly 24,000 — are facing the risk of permanent closure, show industry estimates. 

The hospitality sector, by nature, has a high fixed cost structure and the lockdown led to significant erosion in revenues and margins. The industry now has its eyes set on the recommendations of the KV Kamath Committee.

The immediate task of the panel — expected to come out with its report on September 6 — is to recommend a list of financial parameters to be taken into consideration for each resolution plan, and the sector-specific benchmark range for such parameters. It will vet restructuring of loans above Rs 1,500 crore.

“We seek a one-time restructuring without an impact on our credit rating or assets being declared NPAs,” said Vineet Verma, ED and CEO of Brigade Hospitality. Brigade owns assets of Sheraton Grand, Four Points, and Holiday Inn in Bengaluru. 

InterGlobe Hotels, which owns and runs the Ibis chain, is “exploring the restructuring option”, said President and Chief Executive J B Singh. It has six projects under construction and is well-capitalised for the same, he added. 

At the end of FY19, it had a debt of Rs 781.13 crore, up 0.9 per cent year-on-year, according to an ICRA report.      

Achin Khanna, managing partner at consulting firm Hotelivate, said: “Seeking the moratorium was more of a necessity than preference, because hotels have high fixed costs and large payrolls. The logical route, therefore, is to find a deferment option with regard to debt servicing.  

Many private asset owners have been seeking relief, he added. With the exception of hotels in leisure destinations close to cities, he doesn’t see demand from corporate travellers returning anytime soon. This segment accounts for 60 per cent of the revenue share of large hotel chains.    

“We are awaiting the recommendations of the Kamath committee, as it will take into account severely stressed sectors,” said Patu Keswani, chairman and managing director of Lemon Tree Hotels. 

As of FY20, Lemon Tree had gross debt of Rs 1,596 crore. However, Keswani is not worried. Capital infusion by Dutch pension fund APG, cost-saving measures, and sequential improvement in operations could help Lemon Tree tide over the crisis.

A prolonged crisis would have raised questions on the company’s survival, given the high debt on its book, but the ability to shore up its liquidity buffer to over Rs 500 crore through APG and a rights issue “provides visibility for the next two years in the worst-case scenario”, wrote Rashesh Shah, research analyst at ICICI Securities.  

 “Of the 160,000 branded rooms, 100,000 are owned by individuals. Even after hotels reopen, there won’t be demand. So how will these hotels service their debt?” he pointed out.  

Sanjay Sethi, MD and CEO of Chalet Hotels, the asset owner of Marriott International in Mumbai and Bengaluru, said his firm was well positioned to take care of its debt. “Things are picking up month-on-month,” said Sethi. Its hotels across the portfolio are touching 36-38 per cent occupancy from the low of 11-12 per cent in June.