The $100 billion Tata group controlled-Indian Hotels Company Ltd (IHCL) that runs the Taj group of hotels is planning to exit some of its overseas assets including the management of the iconic hotel, The Pierre in Manhattan, to cut its mounting debt.
A top group executive told Express, “Hard decisions are round the corner. It’s clear even to an outsider that the company is in trouble. Rationalisation of its hotel portfolio in foreign markets is the logical way to go”.
Indian Hotels has 16 international hotels in the Maldives, Malaysia, Australia, the UK, the US, Bhutan, Sri Lanka, Africa and West Asia.
Its total portfolio comprises 93 hotels in 53 locations including the Ginger chain of hotels.
The Pierre overlooking Central Park with 140 guest rooms and 49 suites is one of the most prestigious properties in the Taj treasure trove. A global report recently said that a three storied penthouse with 16 rooms on the 41 st, 42nd and 43 rd floors of the Pierre Hotel—that also house residences—was up for sale for a staggering $125 million dollars. The deal would rank among the most expensive sales of high-end homes in the US.
Indian Hotels took over the management of the Pierre from Four Seasons in 2005. After a massive renovation bill of $ 100 million notched up over several months, the hotel opened it shutters in 2009 to be greeted by the financial meltdown. Demand for expensive hotel rooms plummeted and reports now indicate that the majestic Pierre is burning a 100 crore hole in the Taj balance sheet every year.
An Indian Hotels spokesperson said “IHCL denies any intention to exit from any of its existing operation and management contract that the company has in place for various assets in international markets. The company is also very proud of its association with The Pierre, New York, A Taj Hotel, which is its flagship hotel in the USA. The company is committed to continue its presence in that key market and has no intention to exit from that market.”
Indian Hotels with debt of `3,800 crore has posted a net loss in recent quarters. In the year ended March 31, 2013, the net sales stood at `3,743 crore while the net loss was `390.7 crore.
Tata insiders said that the decision to go on an acquisition spree especially in the US where it acquired other properties in Boston and San Francisco came from a vision of pursuing growth overseas at a time when several international chains were queuing up to establish their presence in India.
Raymond Bickson, IHCL CEO has been quoted in a media report saying that the company’s ability to run properties overseas opened doors for other management contracts in important markets such as China.
That the Indian hotel industry plagued with high debt as a result of acquiring expensive properties both in India and overseas is well documented. Even East India Hotels that runs the Oberoi chain of hotels found a white knight in the India’s richest man Mukesh Ambani. Now, it seems it is time that Indian Hotels’ restructured its operations to puts its house in order.