Top lenders Indian Overseas Bank, Bank of India back out of Leela corporate debt restructuring
Hotel Leela Venture's Rs 3,000-cr debt restructuring proposal has hit a wall with top lenders Indian Overseas Bank, Syndicate Bank and BoI.
MUMBAI: Hotel Leela Venture's Rs 3,000-crore debt restructuring proposal has hit a wall with top lenders Indian Overseas Bank, Syndicate Bank and Bank of India fearing that they may lose out in the socialistic style of loan recovery under the corporate debt restructuring.
Lenders in possession of assets that have substantial value left in them as collateral are reluctant to participate in the CDR since it leads to pooling of less worthy collateral also into a single account, two people familiar with the development said. That robs some lenders the opportunity to recover dues.
The Leela account is still not a bad loan in banks’ books since interest was received till the fourth quarter of last fiscal, but the strain in the business and the debt pile requires restructuring of loans to avoid a default in the future. “We have not closed the case,’’ said M Narendra, CMD of Indian Overseas Bank.
“Banks have presented their views in the last meeting. We will meet and consider the proposal again,’’ he said.
Bankers Keen on Sale of Assets
No date has yet been fixed for the meeting. Hotel Leela Venture, where ITC owns about 18%, has been struggling with poor profitability even as it built properties investing lavish sums.
The company with a revenue of Rs 525 crore in fiscal 2011, had a long-term debt of Rs 3,486 crore and shortterm borrowings of Rs 330 crore, Bloomberg data shows. Its interest expenses more than doubled in 2011 to Rs 55 crore, accounting for more than half of its operating profits.
The company did not respond to queries regarding the delay in debt restructuring. “We asked SBI to replace our existing rupee term loans with 15-year loans’’ but were “surprised when they told us that technically we cannot give it to you unless you apply for CDR,’’ Vivek Nair, managing director and vice-chairman of Leela had told ET some days ago.
“Infrastructure status for hotels has been notified. By mistake, it was given only to hotels outside city limits. A finance ministry committee is currently in the process of correcting it. When it is done, we will seek regreening of our loans,” he had added.
CDR is a mechanism where companies on the verge of a default on their loans apply to the CDR cell seeking relaxation of their repayment schedule and interest rate. Many banks did not join the group since it was time consuming, and only helps in hiding a bad loan without boosting recovery.
To get a revival package, at least 60% of lenders in the consortium representing atleast 75% of the debt due for restructuring have to agree on the terms.
But the company seeking a fresh corporate loan of about Rs 600 crore is also coming in the way since the central bank does not want ever-greening of loans which benefits corporates, but weakens banks.
To deleverage its balance sheet, Leela which runs properties in Bangalore, Goa, Mumbai, Udaipur and New Delhi, recently sold off a property in Kovalam, Kerala for Rs 500 crore. Bankers believe the company has more such assets that could be sold off to improve its financial position instead of just doing a CDR whichjust delays a default.
Hotel Leela Venture reported net loss of Rs 99.65 crore in the quarter ended December 2011 compared to a net profit of Rs 22.04 crore in the year-ago period.