Pierre Hotel Owner Seeks to Cut Debt Selling Belmond, Assets

  • Taj chain sees 30% debt reduction by FY17 from $786 million
  • Indian Hotels plans properties in Tokyo, Beijing to Doha

The operator of New York’s Pierre hotel is seeking to cut its debt by as much as 30 percent in about a year by selling some of its assets, including the stake it holds in a luxury chain that runs the 21 Club restaurant.

Indian Hotels Co., part of the $109 billion coffee-to-cars conglomerate Tata Sons Ltd. that owns the Taj brand of luxury hotels, prefers to raise capital from its own asset base and use that to help pay part of its $786 million of debt, Managing Director Rakesh Sarna said in an interview. On top of his sale list is its 6.98 percent stake in the erstwhile Orient-Express Hotels, now called Belmond Ltd., he said.

“We have a debt situation to deal with,” Sarna said at his office in Mumbai. “I feel reasonably sure that by March 2017, we will make progress. I’d be disappointed if it was any less than 30 percent.”

For Sarna, reducing the debt from a level unseen since 2008 is crucial to his strategy of expanding the chain locally and in some Asian nations where business travel and tourism are picking up. The deleveraging is also part of Tata Chairman Cyrus Mistry’s Vision 2025 to help propel the group’s companies into the top 25 globally by market value and make their products and services available to a quarter of the world’s population.

Kicking the Can

Sarna ruled out refinancing of Indian Hotels debt, saying “you can only kick the can down the road so often,” and said he preferred what he called the “classic, transparent” way to cut the obligations. 

Of the consolidated gross debt of 53.37 billion rupees ($786 million) at the end of December, B&K Securities India Pvt. estimates 5.5 billion rupees will come up for repayment in the year starting April 1, and 6.1 billion rupees the following year.

Cutting costs and improved tourist flows into India may help the company report its first full-year net profit of 359.5 million rupees, ending three straight years of losses, according to analysts’ forecasts by Bloomberg. The share price of the company has tripled since touching a four-year low in August 2013 and traded at 111.10 rupees on Tuesday.

Growth Potential

The South Asian region ranked second among 12 world regions in growth potential in the decade to 2025, according to the latest report by World Travel and Tourism Council. The direct contribution of travel and tourism to national income of South Asian nations could jump 78 percent to $209.4 billion by 2025 from $117.9 billion in 2014, it said.

Indian Hotels owns and manages 15 international hotels including The Pierre in New York and St. James Court in London. In India, it has 121 across brands, including the country’s first five-star hotel, which was scarred during the Mumbai terror attacks in 2008.

“Currently, the company is undergoing a comprehensive review of its unmonetized assets,” B&K’s Mumbai-based analysts Suryansh Agarwal and Parin Tanna wrote in a report last month. “Any move to sell assets to generate cash and repay debt would be positive for the company.”

The sale of its stake in Belmond is a “matter of timing” as the share price has tumbled to about $8.75 from the $32 Indian Hotels paid when it bought a holding in 2007, Sarna said.

“We do plan to exit that equation as soon as we can,” he said. “By the way, we aren’t waiting for the $32 levels to come back, but we also aren’t gonna sell at $8. But that asset sale would be on top of the list.”

One-year default risk for Indian Hotels has fallen while share prices have risen

Indian Hotels plans to add 1,296 rooms across India by March 2017. Mid-sized hotels in Mumbai and New Delhi would be priority, and a search is on for high-yield locations, Sarna said.

Cleaning up its books is also crucial to raise capital for further expansion as the chain plans to open properties in countries ranging from Vietnam and China to Qatar as a pick-up in business travel and tourism in some Asian and Arab nations offers growth opportunities beyond its home market amid a slowdown in the U.S.

Primary targets are Thailand, Malaysia, Singapore, Cambodia, Abu Dhabi and Muscat, while the next priority would be North Asian cities including Hong Kong, Tokyo, Shanghai and Beijing, with most of them through management contracts, Sarna said, without elaborating.

“We’ve got a strategy how to do it,” Sarna said at his office in Mumbai. “These things take a long time. We are trying our best to get there.”

Plans are already afoot in Thailand where the company owns a piece on land on Phuket island, he said.

“It is a good strategy to go to emerging markets with higher growth potential,” said Sumant Kumar, analyst at Elara Securities India Pvt. in Mumbai, who rates the stock a buy. “It brings in diversification. And the management contracts ensure that it stays an asset-light model.”

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