Companies
The Leela Hotels IPO valued at $2.5 billion in dramatic turnaround
Summary
Brookfield acquired assets of the luxury chain in 2019 in bankruptcy proceedings for ₹3,950 croreThe Leela Palaces, Hotels and Resorts will seek a valuation of at least $2.5 billion (approximately ₹21,000 crore) in a public listing likely in nine months, two people familiar with its plans said, in a remarkable turnaround for the luxury chain that changed hands under crushing debt and defaults five years ago.
Promoter Brookfield has tapped JM Financial and Bank of America to be investment bankers, the people said on condition of anonymity, adding the Canadian investor plans to sell 15% to the public initially, and another 10% over the next three years. The IPO may be worth around ₹3,150 crore, making it the biggest in India's hospitality space.
"The Leela has not only emerged stronger than ever from its old worrisome debt issues but is also seeing a steady year-on-year rise in valuations on the back of higher margins. From a bankruptcy situation a few years ago, today, The Leela is commanding a $2.5-3 billion valuation," said the first person, adding the company plans to launch the IPO within nine months.
While listed rivals Indian Hotels Co. Ltd (IHCL) and East India Hotels Ltd (EIH) have a market capitalization of ₹83,228 crore and ₹27,384 crore respectively, ITC Hotels' networth has been estimated at ₹10,000 crore. IHCL and EIH operate the Taj and Oberoi brands respectively.
Spokespersons for Brookfield and Bank of America declined to comment, while emails sent to JM Financial, The Leela and Brookfield Asset management remained unanswered.
Also read: Brookfield's big sale has many investors interested
"While the hospitality business is generally buoyant currently, international demand for the Leela Palaces in India is particularly doing better than others. Occupancy rates and tariffs are both increasing for India's hotels and hospitality services, especially in those properties which offer appropriate wellness services. And The Leela Palaces particularly has an edge over others in that space," the person cited above said.
Brookfield had acquired four assets of The Leela from JM Financial Asset Reconstruction Co. for ₹3,950 crore in 2019. To be sure, the IPO excludes The Leela Mumbai, the first Leela founded by Capt. Krishnan Nair, which is promoted by HLV Ltd and is already listed.
"It will be the largest issue in the hotel space," said the second person. "It is in the discussion stage. They might have to restructure some holdings and all those things before the IPO."
The turnaround
Founder Capt. Krishnan Nair transferred the erstwhile Hotel Leelaventures Ltd to his sons Vivek Nair and Dinesh Nair in 2013, and passed away soon after. Unlike rivals Marriott, Intercontinental and Hyatt, The Leela had raised debt to build new properties rather than running hotels through management contracts. This swelled its interest costs and deepened losses.
The company had a debt of around ₹5,000 crore in FY14. Its finance costs ballooned, margins shrank and a corporate debt restructuring plan failed in 2014. The company transferred loans from 14-odd creditors to JM Financial ARC (JM ARC).
In September 2017, the company converted its debt to equity by allocating over 160 million shares worth around ₹275 crore to JM ARC. The business did no recover, and it began defaulting on interest payments on debentures to Life Insurance Corp. in 2018.
In 2019, JM Financial took The Leela to insolvency court, where Brookfield bought four of its five key hotel assets for ₹3,950 crore—the largest deal in the hotel space then, also changed The Leela's business model from ownership-led to management-led.
Brookfield has been infusing capital into the company over the past five years, expanding the number of The Leela properties in India to 15 now, with plans to increase it to 20 soon.
The Leela's turnaround may partly be attributed to the sharp rebound in the hospitality industry after the end of the covid pandemic.
While IHCL and ITC's hotels have been posting record growth, about 80% of the new deals in India are in the luxury and premium space for Marriott International.
Also read: Hospitality growth story in India to remain strong: Marriott's Rajeev Menon
According to an Economic Times report citing JLL data, in 2023, hotel investments in India touched $401 million, a record fourfold rise compared with 2022. The report said the first quarter of calendar year 2024 has seen an 80% year-on-year rise in deals at $78 million. In 2023 alone, around 25,176 keys were signed and 12,647 keys were opened, says the report.
In February, Juniper Hotels, jointly promoted by the Saraf Group and Hyatt Hotels went public. Also, Apeejay Surrendra Park Hotels debuted on exchanges in a ₹920-crore IPO in the same month.
With at least 1,836 keys, Juniper Hotels is the largest owner of Hyatt-affiliated hotels in India.
The Leela has significant expansion plans as well.
In a recent interview with CNBC TV18, Brookfield's managing partner Ankur Gupta said Brookfield has a plan for almost 20 properties across India for The Leela Palaces.
Brookfield is keen to expand the Leela brand in the housing space too.
The Leela "certainly" targets the service apartment, high and luxury rental side, said Gupta in the interview. "We are coming up with a fantastic project in Mumbai next to the airport, which will be a serviced apartment managed by Leela," Gupta told CNBC.
"The Leela's assets mostly run at 95-97% occupancy, but currently, they are in the mid-80s added Gupta, while pointing out a 10% headroom to grow in terms of occupancy levels.
