Indian Banks Sell On Distressed Hotel Company Debts

Date: August 2018

Location: Sahibabad, Delhi and Jaisalmer, India

Name: Alchemist and others

Hotel Fort Raj Wada, Jaisalmer, India

Reconstruction specialist Alchemist has turned around four properties, after buying their debts, reports DNA India.

Indian hospitality businesses owe around INR36,600 crore (£4.11bn) of bank loans currently.

After failing to recover loans to the hospitality sector, banks are selling these properties to asset reconstruction companies (ARCs).

Edelweiss ARC and the Delhi-based Alchemist ARC are some of the companies which are actively buying out the bad debt in the hospitality sector.

Alchemist has acquired the debt of four hotel properties and turned around some of these properties to generate revenues.

However, the hospitality sector is not a big absorber of bank finance.

According to the latest Reserve Bank of India (RBI) figures, bank loans outstanding to hotel and restaurants and tourism are Rs 36,600 crore as on June 22, 2018.

Some of the big properties that Alchemist acquired are Magnum Ventures, a BSE listed company operating in the paper industry that has a 216-room five star property located in Sahibabad, Ghaziabad in Uttar Pradesh.

The facility was operated by the Radisson Hotel group under its Country Inn & Suites brand.

Magnum had a debt of Rs 300 crore (£33.7mn) to a clutch of banks led by Punjab National Bank (PNB), which turned sour.

Alchemist has acquired 92% of the debt in this company at a 32% discount. It is now restructured and is a performing asset.

Sristhi Dhir, president, Alchemist ARC, said, “Hotels require a very high capex that has a long-term gestation period. If the occupancy or room rent numbers are drastically different from the projections, then such assets can face financial stress. Banks and financial institutions need to take a haircut and restructure the debts if they want an exit.”

Tirupati Buildings & Offices Pvt Ltd, owned by Subhash Dabas, has a five-star property with 393-room hotel in Delhi with a management contract with ITC hotel under the Welcome Hotel Brand.

Tirupati defaulted on a Rs 360 crore debt after which it was acquired by Edelweiss ARC and Alchemist ARC.

When Hotel Gaudavan that owns the 90-room luxury hotel in Hotel Fort Raj Wada at Jaisalmer in Rajasthan was put on sale by State Bank of India, there was a lot of interest from ARCs. Finally, Alchemist acquired the entire debt in an all-cash deal.

A senior banker said, “We generally prefer a one-time settlement or sale to an ARC. The National Company Law Tribunal is not a preferred route as the exposures are small and we are open to giving reasonable discounts.”

“Hotel assets have a very unique annuity model which can be analysed on the basis of existing numbers with a bit of testing of the assumptions based on comparables and industry research.

As long as these assets can be brought down to a sustainable debt level, they can be restructured on the basis of existing cash flows with potential for upside for new investors,” Dhir of Alchemist said.

THPT Comment: OK we have seen the Chinese government get strict with Chinese company’s debt overseas…and now Indian banks with internal debts.

First Seen: DNA India