Tycoons in rush to check into hotels

Mittal, Ambani, Piramal seek to diversify holdings

Sunil Mittal might be fighting a bitter telecom battle with Reliance Jio in India, but a few days ago he decided to invest over $1 billion to expand his hotels business in Europe and the US. This was done in partnership with London-based Sharan Pasricha, his son-in-law who runs Ennismore that develops, manages and runs the Mittal properties.

Mittal is, of course, not new to the hotels business. He dabbled in it in 2004, when he bought the 150-room five-star beach hotel Le Meridien in the Seychelles through his telecom venture in the country. The telecom czar then followed this up with investments in hotels in the UK, Europe and the US through his family holding company Bharti Enterprises and in partnership with Ennismore.

Hoxton, a budget brand owned by the Mittals, runs hotels in London, Paris and Amsterdam. It is expanding and hopes to open a hotel in Williamsburg this year, followed by properties in Portland, Chicago, Los Angeles and London’s Southwark.

Ennismore manages for the Mittals the Gleneagles, an 850-acre hotel property in the Scottish countryside. The company has launched a budget hotel brand, NoCo, which will have rooms priced below those of Hoxton. It is scouting for properties across the UK.

The new investment by Mittal will fund growth of his hotel business. “Bharti Global, an arm of Bharti Enterprises, is investing in development of the hospitality business in Europe and the US in partnership with Ennismore,” a spokesperson for the group pointed out. Mittal is not the only Indian tycoon who sees potential in hotels. Ajay Piramal, Analjit Singh and Mukesh Ambani are there already, either as investors or operators.

“The hotel business finds favour with tycoons globally, as it allows investors to diversify their holdings and participate in a growing industry,” said Achin Khanna, managing partner in hotel advisory firm Hotelivate.

The Ajay Piramal group is planning to invest ~80-100 billion within the next three years in financing hotels and has already deployed ~13 billion. This includes a recently concluded ~6.5 billion financing deal with the Vatika group for its two Westin hotels in Gurugram and another resort on Sohna Road.

“The hospitality industry is operating the same way as real estate did three or four years ago. Traditional lenders are not able to provide funds to industry participants. An arbitrage opportunity exists that enables us to provide a complete solution,” said Khushru Jijina, managing director, Piramal Finance.

The Piramals have provided structured finance to many real estate developers that are putting up hotels and their typical exit route is through refinance within five years.

Jijina pointed out the hospitality industry was poised for a re-rating as it was becoming more challenging to build newer hotels of scale and quality. This, in turn, would improve the performance of existing quality hotels, he added.

Others like Analjit Singh, chief of the Max group, had identified hospitality nearly 20 years ago when the group was moving out of manufacturing and into services. Singh forayed into health care and financial services as well, making them big businesses, and in education his role was limited to heading boards of schools and institutes.

But his tryst with hotels began in 2008, when he bought a 9 per cent stake in East India Hotels, which operates the Oberoi chain, and many saw him as the white knight in a speculated hostile takeover by ITC.

While no one has talked on record during those times, sources say Biki Oberoi chose to go to Mukesh Ambani, with whom he had a close relationship. He was unsure whether Singh would have the long-term capital required for this business. Singh, realising the change, decided to sell part of his equity to Mukesh Ambani and call it quits.

The Ambanis, of course, increased their stake in EIH to 14.8 per cent and inducted two board members, one being Nita Ambani. For the Ambanis, despite speculation that they might increase their stake further, it has still remained a “long-term financial investment”.

Singh, however, fell in love with Africa, where he had gone to see the football World Cup in 2010. He bought three farms through his private investment companies in the wine town of Franschhoek in Cape Town and the brand Leeu Collection was born.

The 68-acre farm has three exclusive hotels with 50 rooms, apart from a micro brewery and vineyards.

But after testing his model for the hotel, which includes art collections, unique architecture and landscaping, Singh is now taking it beyond Africa to the UK and Europe. While there are no official numbers about his total investments, some experts say he could have forked out over $200 million.

Singh has bought the 30-bed Linthwaite House, a country retreat overlooking Lake Windermere, followed by Leeu Villa Querce in Florence, a 70-room property with gardens that is expected to be launched in 2021. And a luxury hotel in the West End of London with permission for 100 rooms to be opened in 2020.

Singh’s son-in-law Sahil Vachani sums it up: “His passion was hospitality. After all, how many industrialists do you know who leave their business empires at the operating level to others to chase their passion?”