Piramal Finance eyes hospitality sector, in talks with hotel firms

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Mumbai: Piramal Finance Ltd, the non-banking financial arm of Piramal Enterprises Ltd (PEL), is planning to invest in the hospitality sector for the first time and has already started talks with a few hotel companies, according to two people aware of the development.

The Ajay Piramal group firm, which mostly funds residential and commercial real estate projects, is diversifying its portfolio with a foray into the hospitality sector which has started turning around in the last two years, said one of the people cited earlier on condition of anonymity.

“Piramal Finance has been given the mandate by the group to either take a minority equity position or offer structured debt to hotel companies and owners,” this person added.

According to this person, the company has started scouting for opportunities to invest in branded hotels as well as individual owned hotel properties or portfolio of assets.

A Piramal Finance spokesperson did not reply to an email seeking comment.

Piramal is looking to be primarily in the lending space providing structured debt to hospitality firms, said the second of the two people cited earlier.

This person said that the company is expected to make its first transaction in the first quarter of 2018.

“It’s a sector which they (Piramals) are seeing an opportunity in… They have never been a marginal player and would definitely want to scale up soon,” the person said.

Piramal Enterprises has assets under management of over Rs50,000 crore in the real estate segment.

Hotel companies have primarily been funded by large public sector banks and a few private sector lenders.

According to experts, as room occupancies improve and demand catches up with supply, there is growing interest from new lenders as well
as from private equity investors.

“Largely, hotel companies have been financed by the public sector. But now we are seeing interest from new lenders as the hotel sector slowly shows signs of turning around,” said Shobhit Agarwal, managing director (capital markets) JLL India, a property consultant.

According to HVS Global Hospitality Services, pan-India hotel occupancy has touched 65% in 2017, while average room rates (ARR) appreciated by 2.4% in 2016-17 over last fiscal, the highest in the last four years.

Apart from debt structuring, the Indian hotel space has seen private equity deals picking up over the last one year.

“PE/venture capital activity has picked up in the market over the past 12-18 months; however, unlike the interest during 2005-2008, investors this time are cautious and looking more at operational/ready hotels, rather than going through a 3-5 year construction cycle to avoid project delays and cost overruns,” said Pavethra Ponniah, vice-president, corporate sector ratings at Icra Ltd.

In August this year, hotel investment and development firm Samhi Hotels bought out British hotel chain Premier Inn’s five hotel properties in India for around Rs220 crore.

Other big hotel deals signed this year include Paris-based Louvre Hotels Group’s acquisition of a controlling stake in Indian hospitality chain Sarovar Hotels Ltd for around Rs350 crore and Mozambique-based Masa Hotels Ltd’s purchase of Aristo Realty’s hotel project in Mumbai for about Rs200 crore.