Hotel Leelaventure may have to grapple with liability overhang

By the end of the deal, Leelaventure would be a debt-free company, a source said

Hotel Leelaventure’s proposed sale of four properties and other assets to Canadian fund house Brookfield may not wipe out its entire liabilities.

 

On March 18, Leela announced the sale of its four hotels — located in Bengaluru, Chennai, Delhi and Udaipur — and interest in other assets to Brookfield for Rs 3,950 crore. That’s apart from the Rs 300 crore or more that the promoters were likely to get from parallel arrangements.

 

The Brookfield transaction was aimed at repaying the lenders and closing all of the company’s borrowings. Leela’s consolidated debt at the end of March 31, 2018, was Rs 3,781 crore.

 

Its losses widened to Rs 89 crore in the nine months ended December 2018 against Rs 7.42 crore in the same period a year ago, the company said on February 12. Net sales and income from operations increased to Rs 529 crore, against Rs 510 crore in the same period.

 

A person familiar with the deal said by the end of the transaction with Brookfield, Leela would be a debt-free company. The promoters are selling the brand and will get Rs 150 crore for it, he added.

 

On whether the deal is likely to be stalled after ITC’s objections and Sebi’s intervention, the person said, “The deal will go through as ITC has no real locus standi,” said the person.

 

ITC’s petition however points to liabilities that were likely to come up in the future. Leela’s Mumbai hotel, that would remain with it, was subject to liabilities as the Airport Authority of India had terminated the lease. It has an outstanding liability in excess of Rs 800 crore.

 

The AAI has filed a suit and asked for injunctions restraining the creation of any third party rights or alienation or restructuring of the assets of Leela unless it handed over vacant possession of the leasehold property at Sahar and paid off the dues. The application had been partly heard.

 

The liability towards AAI is an “uncrystallised liability” — the discussions are on and there are varied figures, said the person. The remaining liability would be paid from the earnings of Leela’s Mumbai hotel, the only significant asset that would remain with the company.

 

When announcing the transaction, Leela had stated that apart from the hotel in Mumbai, it would continue to hold and operate certain land in Hyderabad, valued at about Rs 40 crore and the joint development project of residential apartments with Prestige Developers in Bangalore, the balance value of which is about Rs 90 crore.

 

ITC has also pointed to a loan of about Rs 120 crore from Leela Lace Software Solutions which would have to be discharged even after the transaction. Further, the income-tax liability of the Brookfield transaction was likely to be borne by Leela.

 

ITC’s apprehension is that if Leela divested its revenue stream in favour of Brookfield as contemplated, then it would not have any means to pay off the dues and would end up being liquidated.

 

However, the person familiar with the deal pointed out, “ITC is claiming to be a white knight for minority shareholders. How would the interest of minority shareholders be better served if the company goes to NCLT and turns insolvent.”