Hotels get wiggle room on debt but execution is key SHALLY SETH MOHILE

Banks must be willing to restructure, say hotel executives

The K V Kamath Committee’s recommendations on loan restructuring are likely to offer some relief to the hospitality sector that is now staring at a debt pile, say hotel executives. They are, however, sceptical of whether the lenders would exercise the restructuring option and pass on the benefits.

The cumulative debt of the hospitality sector is close to ~45,000 crore. At least a third of this is likely to be restructured, say analysts.

Manav Thadani, co-founder and chairman at Hotelivate, a hospitality consulting firm, says, “It’s not a one-size-fits-all situation.” Hoteliers said the very fact that the sector has found mention is creditable. But how it gets off the ground is critical. “We are happy with the recommendations. At least they give hotels an opportunity to restructure their debt and increase their moratorium period,” says Suhail Kannampilly, chief operating officer at The Fern Hotels & Resorts, adding, “The key lies in implementation.”

The banking sector views the hospitality sector as ‘non-essential’. The recommendations leave it to banks to take a call on restructuring on a case-by-case basis, adds Kannampilly.

The general guidelines suggested by the committee include extension of residual tenure of loan by a maximum of two years (with or without payment of moratorium). The moratorium period, if granted, will come into force immediately upon implementation of the resolution plan. In order to implement the resolution plan, it’s important that asset classification is maintained as standard, or upgraded to standard.

Banks will filter the accounts that can be restructured on the basis of key ratios, including liabilities, adjusted tangible net worth, total debt/earnings before interest, tax, depreciation, and amortisation, service coverage ratio, etc.

Nandivardhan Jain, chief executive officer (CEO) at Noesis Capital Advisors, says the capping of debt tenure for a maximum of two years can be limiting. This is limited relief, as hotels will take at least three-four years to recover to pre-crises levels. “It’s a stopgap arrangement,” says Jain. Vibhas Prasad, director at Uttarakhand-based Leisure Hotels Group, seconds Kannampilly. His firm owns and operates hotels under its own brands. He is also the asset owner for Indian Hotels’ and Mahindra Holidays’ properties in Uttarakhand and Himachal Pradesh.

Bengaluru-based Brigade Hospitality Services — the asset owner of Holiday Inn, Sheraton Grand, Four Points, among other brands — is “reviewing the recommendations, particularly with respect to the qualifying yardstick, eligibility ratios, and will proceed accordingly”, says Vineet Verma, executive director and CEO at the firm.