Lehman Brothers to ink deal with Future Capital LEHMAN Brothers Holdings, the investment arm of the US investment banking group Lehman, is close to in

LEHMAN Brothers Holdings, the investment arm of the US investment banking group Lehman, is close to inking a partnership deal to invest over $100 million in a hospitality venture with Future Capital, the financial services arm of Kishore Biyani’s Future Group. The group has set up a separate subsidiary, Future Hotels, to build 50 hotels in the three- and four-star category involving an investment of $300 million. It is also in talks with a hospitality group that can step in as a partner to run the business. The hospitality venture will be led by KK Malhotra, a former president of ITC Hotels, and Rahul Nair, vice-president (merger & acquisitions) of the Taj Group). A steady growth in the travel business and decent return on investments have triggered a slew of private equity and foreign investment deals in the local domestic hospitality industry. Raj Sundaram, head of the real estate arm of Lehman Brothers India, refrained from commenting on the deal. “We are looking at investments in the hospitality sector. But I will not be able to comment on specific deals,” he said. The hospitality project has been conceived by Samir Sain, managing director of Future Capital, and Shishir Baijal, CEO and managing director of Kshitij Investment Advisory, the real estate arm of Future Capital. “We are building hotels in India. But at this stage, I cannot comment on who we are partnering with for investments in the business,” he said. The hospitality venture will target middle management business professionals who are also value-conscious, sources said. Lehman Brothers Holdings, which owns a large portfolio of hotels outside India, was founded in 1850 and is a diversified, global financial services firm. Headquartered in New York, the firm has regional headquarters in London and Tokyo and offices in various markets. Future Capital currently incubates new lines of businesses and offers shared services and capital to all ventures under it. Spiralling land prices and rising interest rates in India are forcing many hoteliers to upgrade their two and three-star hotel projects to four- and five-star levels. Out of the 300 hotel projects recently approved by the government, 55% of its development is understood to be four- and five-star hotels, accounting for about $1.6-billion investment. The key reasons for this are the higher profitability and revenues that accrue from a four-star hotel room as compared with a two- or a three-star one. “Real estate firms with enhanced financial capabilities are jumping in to get land parcels at unheard of prices and the high land cost component is limiting their focus to luxury hotels,” sources in the hotel sector said. Some of the new hotel properties are expected to add an additional 12,332 rooms in the luxury segment and 15,924 rooms in the five-star category out of a total 53,333 rooms in various metros planned across the next three to four years. A huge demand-supply gap saw the room rates for premium hotels go up by over 20% the last few years. While premium hotel (four- and fivestar deluxe) room growth has been around 6% over the last five years, the two- and three-star categories have seen a negative growth rate of 7% and 10%, respectively.

IT’S A DEAL

The boom in business travel industry has triggered PE & foreign investments in the hospitality sector A huge demand-supply gap has pushed up the premium hotel (3 & 4 star) room rates by over 20% the last few years Spiralling land prices & rising interest rates are forcing hoteliers to upgrade their 2-star or 3-star hotel projects to 4- & 5-star levels Future Capital incubates new lines of businesses & offers shared services & capital

Courtesy: EconomicTimes