Indian Hotels Co. (IHCL) and Singapore’s sovereign wealth fund GIC will set up a three-year, Rs. 4,000-crore investment platform to acquire hotels in the luxury, upper-upscale and upscale segments, the company said recently.
The Tata group company that runs the Taj hotels said the partnership will enable it to pursue acquisitions in an “asset-light format,” favouring management contracts over complete property ownership. Under the deal, equity contribution from IHCL will be 30% with the rest to be contributed by GIC over three years.
CEO Puneet Chhatwal told ET that potential acquisitions by the platform include external assets and IHCL properties that it wants to sell stakes in.
“I think we are looking at assets that go into NCLT (National Company Law Tribunal), assets which are distressed, and are being sold at a value that is compelling,” he said. “But, this would also include assets we own because it is a part of our strategy.” The NCLT benches function as bankruptcy courts.
Chhatwal said this was in line with the company’s plan to dispose of assets.
“We had said we don’t want to be asset heavy anymore. We sold apartments, our properties in Thiruvananthapuram and Vishakhapatnam,” he said. “There may be assets in our system which are owned 100% by us. So, our shareholding goes from 100% in these assets to 30% of the equity then.”
The partners will look for acquisitions in India’s top 10 cities besides state capitals, Chhatwal said “There are some state capitals which are very important and commercial cities. A city like Bhopal and those like Indore or Pune are also not bad,” he said. “It will be opportunity driven. So, if the opportunity is big and it is a good one, we will go for it.”
The mandate will be to acquire fully operational hotels with each purchase being made through a special purpose vehicle with its own funding. The acquired hotels will be managed by IHCL under its various brands. GIC was keen to partner with IHCL to build a quality hospitality portfolio in key destinations across India, said Kok Sun Lee, chief investment officer of GIC Real Estate.
“As a long-term investor, we are confident in the outlook of India’s hospitality sector,” he said. “We look forward to working closely with established partners such as IHCL to pursue attractive opportunities and capture the sector’s growth potential.”
IHCL said it would sell noncore assets and become less ownership driven as part of its Aspiration 2022 strategy, which was announced in February last year. As much as 60% of the properties it runs will not be owned by the company by 2022. IHCL also wants to reduce its dependence on the luxury segment and move hotels belonging to group entities to the holding company. The strategy also calls for monetising noncore assets, including residential apartments in Mumbai and elsewhere, besides forging new alliances with other Tata group companies.
The company has been on an aggressive management contract signing spree under Chhatwal, adding 22 hotels with an inventory of over 3,200 rooms across brands in India and key international markets such as London, Makkah, Kathmandu and Dubai in the year ended March. The company is poised to open one hotel per month in light of “a healthy pipeline and confirmed momentum of signing new contracts,” Chhatwal had said last month.
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