If Bharti Airtel led the way with an asset-light model in the telecommunication industry, Hotel Leelaventure (Hotel Leela) is attempting to do something similar in the hospitality industry.
The 5-star hotel operator said it will sell its Kovalam property to Ravindran B Pillai, or Ravi B Pillai, who owns the Saudi Arabia-based Nasser S. Al Hajri Corporation, an industrial contractor operating in the Middle East.
Hotel Leela will transfer the hotel property to a subsidiary in the first leg of the transaction and then sell the subsidiary to Travancore Enterprises, a company owned by Mr Pillai. The first leg will be done through a scheme of arrangement.
While the property will belong to the new company, it will continue to be called ‘The Leela’ and it will continue to be managed by Leelaventure.
Thus, Mr Pillai will be a financial investor who will take this asset off Hotel Leela’s books. In return, a revenue sharing or profit sharing arrangement would have been worked out. Also, if he chooses to exit at a later stage, Hotel Leela may have the first right of refusal and at a pre-determined price formula. So there will be a capital gain at that point as well.
Management contracts in the hotel industry are not new. But the kind that Hotel Leela is proposing is relatively new. What it does is to monetise its existing hotel properties, and it can then use that cash either to refurbish properties or lower debt, or even make new acquisitions. Recently, it had tied up with a real estate firm –Prestige Estates- to jointly develop surplus land adjoining its Bangalore property.
Hotel Leela will find inflows useful. The company had total debt of Rs 3,803 crore and debt to equity ration was 1:1 times. Selling off its properties could help the company partly repay its debt, therefore bringing down its interest costs as well.
Hotel Leela said in a statement, that this disposal is pursuant to its ‘asset-light’ model and it is also examining bids for management contracts for other hotels.
Read the press release on the BSE site here.