JM Financial files application at NCLT against Hotel Leela Venture

The move will help lenders get a better valuation, said an official at one of the lending firms. The case is likely to come up before the NCLT Bench by middle of next month

Hotel Leela Venture said on Tuesday that JM Financial Asset Reconstruction Co (JMFARC) has filed an application with the National Company Law Tribunal (NCLT), Mumbai Bench, against the company. 

The move will help lenders get a better valuation, said an official at one of the lending firms. The case is likely to come up before the NCLT Bench by the middle of next month, he said. 

The application has been filed under Section 7 of the Insolvency and Bankruptcy Code (IBC), the company said in a filing to the stock exchanges on Tuesday. Meanwhile, Leela “is continuing to engage with prospective investors for a resolution,” it said. JMFARC owns 75 per cent in the beleaguered hotel chain. “Lenders are of the view that many parties have shown interest. So, the best course of action is to approach the insolvency court for better valuations. Once the company moves under the resolution process, the room for existing promoters to shape or influence the management will be severely curtailed,” said the official cited above.

The move to take the company to the NCLT may prolong getting the prospective investor on board as part of the debt resolution. “Lenders don’t mind the delay as long as they get a better valuation,” said the source.

With the hotels portfolio spanning across Delhi, Chennai, Udaipur, Gurugram and Bengaluru, the chain’s 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 in a filing to the BSE on February 12. 

Net sales and income from operations increased to Rs 529 crore, against Rs 510 crore in the same period. At the end of the December quarter, Leela had a debt of Rs 6,164 crore.  

Leela has been evaluating various options for a viable resolution, including sale and monetisation of non-core assets, sale of hotels and equity infusion, among others, it had said.

In June last year, Hotel Leela Venture’s board approved the enabling provision to issue up to 1.25 billion equity shares in one or more tranches to JMFARC, which currently holds most of its debt. 

The potential share issue could have hiked JMARC’s stake in Leela Venture to 75 per cent from the current 26 per cent but the proposal was not approved during the company’s annual general meeting held on August 20.

According to unconfirmed reports, Canadian private equity major Brookfield Asset Management has finalised the terms and conditions with JMARC to acquire Hotel Leela Venture for about Rs 4,500 crore.

Leelaventure’s shares closed at Rs 10.41 apiece, down 0.73 per cent on the BSE on Tuesday.