Berggruen Holdings to Invest Rs 1,000 Crore in Indian Hotel Sector by 2012
Berggruen Holdings, a New York-based private investment firm, is poised to infuse over Rs 1,000 crore into the Indian hospitality sector by 2012. This substantial investment will fuel the expansion of Berggruen Hotels, its subsidiary focused on developing a network of three- and four-star hotels across the country. The company plans to leverage a 2:1 debt-equity ratio for this ambitious venture. In the initial phase, Berggruen Hotels has secured Rs 130 crore in financing from IDFC to support the construction of eight properties. The organization is actively pursuing partnerships with other financial institutions to bolster its funding strategy, according to Partha Chatterjee, whole-time director and chief marketing officer of Berggruen Hotels. He elaborated, “We are also looking to tie up with other funding agencies.”
Chatterjee explained the funding structure, noting, “The funding for the first tranche from IDFC is in the ratio of 1:1 while it will be in the 2:1 ratio for the second tranche.” Berggruen intends to strategically draw upon the debt financing based on project requirements. It will finance the development of approximately 38 properties in India by 2012, encompassing both land acquisition and construction costs. The company has already invested Rs 150 crore in acquiring land parcels in around 18 cities across India.
Realty Market Dynamics Impacting Hotel Development
The relentless surge in real estate prices in key urban centers like Mumbai, Delhi, Chennai, Jaipur, and Pune, which witnessed an increase of 50-60%, previously compelled Berggruen and other hospitality players to temporarily curtail land acquisitions. The link illustrating these cities can be seen in the original article. However, the current downturn in the real estate market has rekindled optimism within the hospitality industry, prompting renewed expansion plans. Berggruen's first property, situated in Thiruvananthapuram, is expected to commence operations in February of the following year.
Global Expansion Plans
Berggruen Holdings will replicate its need-based funding approach for international ventures, mirroring the strategy employed in India. This dynamic model avoids retaining idle capital, a key principle espoused by Chatterjee. Industry analysts estimate that such global ventures could necessitate an investment of approximately $100 million. The company is evaluating greenfield projects across various regions, including the Middle East and North Africa, South East Asia, and South Asia. Specific targets include five properties in Morocco, six in the United Arab Emirates, and four in Turkey. Within South Asia, Sri Lanka and the Maldives are among the potential expansion destinations. In Morocco and the UAE, the company will pursue joint ventures for greenfield projects. Meanwhile, in Turkey, Berggruen will independently develop and manage properties, leveraging its established presence in the region.