The Leela Palaces Hotels and Resorts to be a debt-free company post IPO

The Leela hotel operator to repay all debt using IPO proceeds; Brookfield reduces OFS; company eyes expansion with branded residencies and members-only clubs

The Leela Palaces Hotels and Resorts, the luxury hotel brand operated by Brookfield Asset Management-backed Schloss Bangalore, will be a debt-free company after raising ₹3,500 crore through an initial public offer (IPO), the largest IPO yet in the hospitality segment. The IPO will open on May 26 and close on May 28.

 

“The primary proceeds of the IPO, which is close to ₹2,500 crore, would be used to squarely pay off our debt, and we will become net zero when it comes to net debt,” Anuraag Bhatnagar, chief executive officer (CEO), Schloss Bangalore, told Business Standard.

 

This comes after the hotel company consisting of 3,553 keys reduced its IPO size by 30 per cent to ₹3,500 crore, according to its red herring prospectus (RHP). Even Brookfield Asset Management cut down its original offer for sale from ₹2,000 crore to ₹1,000 crore. Schloss Bangalore’s IPO comprises fresh issue of equity shares worth ₹2,500 crore and an offer for sale of equity shares worth ₹1,000 crore, with a face value of ₹10 each. The price band of the issue is fixed at ₹413-435 per share.

 

“The primary intuition was going to make the (company’s) net debt zero,” said Ankur Gupta, managing partner and head of real estate for Asia Pacific and Middle East, Brookfield Asset Management. “...the offer for sale component, given the strong performance and our belief in the business, has never been better, so we just feel that the 24 per cent dilution is the right number for us in the short term,” he added.

   

 

Gupta also said that the business of the company will decide if Brookfield Asset Management would want to reduce its stake further in the coming years.

 

The company currently has five owned hotels and eight hotels through management, with seven hotels (678 keys) in its pipeline. Bhatnagar added that out of these seven hotels, five would be owned by the company, and two would be under hotel management agreements. On the other hand, the company is also going to enter the branded residencies segment, with its first opening in the next 15-18 months.

 

“We will have ten owned hotels by financial year 2027-28 (FY28). We are in eleven cities right now and six new locations — Agra, Ayodhya, Ranthambore, Bandhavgarh, Srinagar (owned hotels in these cities), and Sikkim (under management), are in the pipeline,” he noted.

 

At the IPO conference, Ravi Shankar, head-asset management and chief financial officer (CFO), Schloss Bangalore, said that The Leela’s revenue per available room (RevPAR) is at ₹15,300. This is higher than the industry’s luxury segment average RevPAR, which stands at ₹11,000. Corroborating Shankar’s statement, Bhatnagar said that The Leela commands a 40 per cent premium over the luxury market in India and expects this trend to continue for the hotel.

 

Both Bhatnagar and Gupta said that the hotel company is open to expanding globally in the future.

 

“We are open to evaluating any opportunity that makes business sense to the company. We (Brookfield Asset Management) are doing business in 30 countries and by virtue of that, we don’t have to go looking for opportunities,” Gupta explained.

 

Additionally, the company is going to start an exclusive members-only club in three select locations — Delhi, Bengaluru and Chennai.