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Indian Hotels teams up with GIC in domestic hotel push

May 17
19:25 2019

Indian Hotels Company (IHCL) has announced a strategic deal of Rs 4,000 crore with Singapore sovereign wealth fund GIC (Government of Singapore Investment Corporation), aimed at investing in hotel companies in India.

The news immediately lifted the stock on May 17, which later steadied.

Here are a few highlights you should take note of:

– The proposed investment will be spread over the next three years for acquisition of hotel properties across India.

– The acquisitions are to be made in fully operational luxury, upper upscale and upscale hotels.

– This will be executed through a special purpose vehicle (SPV) that will have its own funding.

– The expansion is expected to be funded through a 50:50 mix of debt and equity.

– The equity component will be contributed by IHCL and GIC in 30:70 ratio, respectively. The remainder Rs 2,000 debt will be raised by the SPV independently against the acquired assets.

– The equity contribution for IHCL will come to around Rs 600 crore in the next three years. As of March 31, the hospitality major reported Rs 189 crore as consolidated cash and Rs 88 crore as standalone cash on its books. It expects to fund investment through internal accruals and will raise debt, if need be.

– On a consolidated basis, the company has Rs 1,687 crore debt on its books currently, with a debt/equity ratio of 0.33x.

Part of the company’s ‘Vision 2022’ strategy, the move will help in rapid expansion through an asset-light model. IHCL will manage the hotels acquired under the SPV, which is expected to give a fillip to the Taj brand. Given that the investment is spread over 3 years, we do not expect any significant impact on the balance sheet of the company.

That said, we note that as a trend, large-scale investments could push up per room transaction costs in the domestic hotel market. This leads to a shift of preference towards new property development, an early sign of approaching peaks of the business cycle.

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