The Leela Hotels IPO: Brookfield and Bank of America Drive $2.5 Billion Turnaround with JM Financial

Brookfield, the promoter of The Leela Hotels, has hired JM Financial and Bank of America as investment bankers for an upcoming IPO. According to sources, Brookfield plans to sell 15% of the company initially, with another 10% to be sold over the next three years. The IPO is expected to raise around ₹3,150 crore, making it the largest in India’s hospitality sector.

“The Leela has bounced back from its past debt issues and is now seeing steady growth in value due to higher profit margins. Once on the brink of bankruptcy, the company is now valued between $2.5 and $3 billion,” said a source. The IPO is set to launch within nine months.

Compared to its competitors, Indian Hotels Co. Ltd and East India Hotels Ltd, which are valued at ₹83,228 crore and ₹27,384 crore respectively, ITC Hotels is valued at ₹10,000 crore. Indian Hotels and East India Hotels operate the Taj and Oberoi brands.

A spokesperson for Bank of America declined to comment, and representatives from JM Financial, The Leela, and Brookfield did not respond to emails.

Market Position

“The hospitality sector is thriving, and The Leela Palaces in India are particularly doing well. Occupancy rates and room prices are rising, especially in hotels offering wellness services. The Leela has a strong position in this market,” said another source.

Brookfield acquired four of The Leela’s assets from JM Financial Asset Reconstruction Co. for ₹3,950 crore in 2019. The IPO will not include The Leela Mumbai, which is already listed and promoted by HLV Ltd.

“It will be the largest IPO in the hotel sector,” said another source. “Some restructuring of holdings might be necessary before the IPO.”

The Turnaround

The Leela was founded by Capt. Krishnan Nair, who passed control to his sons, Vivek and Dinesh Nair, in 2013. Unlike its rivals Marriott, Intercontinental, and Hyatt, The Leela had raised debt to build new properties rather than managing them through contracts. This led to high-interest costs and increased losses.

By FY14, The Leela had a debt of around ₹5,000 crore. High finance costs and shrinking margins led to a failed corporate debt restructuring plan in 2014. The company transferred loans from 14 creditors to JM Financial ARC.

In September 2017, The Leela converted its debt to equity by issuing 160 million shares worth ₹275 crore to JM ARC. However, the business continued to struggle, and by 2018, it began defaulting on interest payments.

In 2019, JM Financial took The Leela to insolvency court, where Brookfield acquired four of its five main hotels for ₹3,950 crore. This was the largest deal in the hotel sector at the time and changed The Leela’s business model from owning hotels to managing them.

Recent Developments

Brookfield has invested in The Leela over the past five years, expanding the number of hotels in India to 15, with plans to reach 20 soon.

The Leela’s recovery is partly due to the hospitality industry’s rebound post-COVID. Competitors like Indian Hotels Co. Ltd and ITC Hotels have also seen record growth.

According to JLL data cited by the Economic Times, hotel investments in India hit $401 million in 2023, a fourfold increase from 2022. The first quarter of 2024 saw an 80% year-on-year rise in deals at $78 million. In 2023, 25,176 hotel rooms were signed, and 12,647 were opened.

In February, Juniper Hotels, co-owned by the Saraf Group and Hyatt Hotels, went public. Apeejay Surrendra Park Hotels also had a ₹920-crore IPO the same month. Juniper Hotels is the largest owner of Hyatt-affiliated hotels in India, with 1,836 rooms.

Expansion and Diversification

The Leela has big expansion plans. Brookfield’s managing partner Ankur Gupta told CNBC TV18 that there are plans for nearly 20 Leela properties across India. Brookfield also aims to expand The Leela brand into the housing sector, targeting high-end and luxury rentals.

Gupta mentioned a new serviced apartment project managed by Leela in Mumbai, next to the airport. He added that while most Leela properties run at 95-97% occupancy, current levels are in the mid-80s, leaving room for growth.