Brookfield checks in at Hotel Leelaventure; industry experts cheer

The beleaguered Hotel Leelaventure (HLVL) is ready to make a fresh start under a new parent - Canada's Brookfield Asset Management. The deal between the company and Brookfield, which took more than a year to come to fruition, includes the sale of hotel properties in Delhi, Bengaluru, Chennai, Udaipur and Agra for Rs 3,950 crore. It does not include the Mumbai hotel property, which will continue to be operated by the erstwhile promoter group under the Leela brand licensed to it by Brookfield. Land in Hyderabad and its share of apartments under the joint development project of residential apartments with Prestige Developers in Bengaluru are also not included in the deal.

The entire proceeds from the deal have gone into repaying the debt of the banks and financial institutions as part of a one-time settlement. As per some estimates, HLVL had an outstanding debt of over Rs 3,000 crore.

"The lenders have issued release letters to the company whereby they have confirmed that there are no further dues payable by the company and have thereby released all the security interest created in that regard including security on assets which are not part of the sale of undertakings to Brookfield," the company said in a statement. Also, the promoters have also transferred the Leela brand and trademarks to Brookfield for Rs 150 crore. The personal guarantees issued by the promoters for the chain's debt will be released by the lenders.

Under the deal, the company has transferred all its employees at four properties (Delhi, Bengaluru, Chennai and Udaipur), and at the corporate office, to Brookfield. Its president Rajiv Kaul and CFO Rajan have resigned from the company though.

The deal ends months of uncertainty around the brand's future. "The conclusion of the Leelaventure deal augurs well for the domestic hospitality sector on various counts. Firstly, it brings to an end the difficult times for one of India's premium luxury hotel companies. Secondly, it brings into India one of the world's largest private equity investors who clearly will be looking to further grow its portfolio. Also, the deal of this magnitude help in building favourable investment sentiment and will be a trigger for more M&A activity in the sector," says Mandeep Lamba, President at HVS Anarock, the South Asian arm of global hospitality consulting major HVS.

The deal also highlights the bullishness of Brookfield on the Indian market. The investment firm has already agreed to buy Reliance Jio Infratel unit in a multi-stage deal in which it would invest Rs 25,215 crore in the units proposed to be issued by tower infrastructure trust that owns 51 per cent in the towers company.

But the disputes of ITC, a 7.92 per cent shareholder in the company, with HLVL will continue even after the transaction. On September 2019, Securities Appellate Tribunal (SAT) had passed an order on September 26, 2019, dismissing ITC's appeal against the order of market regulator Sebi. ITC Limited has filed an appeal before the Supreme Court against the order of SAT, but the same has not come up for hearing. ITC's petition before the NCLT is also pending for their judgment on the waiver of the requirement to hold not less than one-tenth of the issued share capital of the company as required under Section 244 of the Act. Earlier, ITC had accused HLVL of oppression and mismanagement against minority shareholders, which was perceived by some investors as a possible attempt to kill competition and acquire HLVL's assets under the insolvency proceedings at a lower valuation. As a minority shareholder, LIC too had complained to the Sebi, alleging violations of minority shareholders.

"As Brookfield has now acquired the undertakings in accordance with the orders of Sebi and SAT, HLVL hopes that ITC, which is a minority shareholder and a competitor, stops further litigation," the HLVL statement said.

Started by C.P Krishnan Nair in 1986, HLVL is primarily a luxury hospitality chain that competes with brands such as Oberoi Hotels, Taj Hotels, ITC Hotels, Four Seasons Hotels and luxury brands of international brands such as Marriott International and Hyatt Hotels. The brand is ranked 15th in the hotels' consultancy Hotelivate's Trends & Opportunities 2019 report in terms of room inventory. HLVL has been posting losses for at least five years in a row. In 2018-19, the company posted consolidated net losses of Rs 118.93 crore.

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