Below is the edited transcript of Vivek Nair, vice chairman & MD, Hotel Leela 's interview to CNBC-TV18.
Q: Apart from general industry trend, debt has been a problem particularly for Hotel Leela. In next five months what can we expect by way of fund raising or sale of properties and where is the debt likely to be by the end of FY13?
A: Reduce demand from Europe due to eurozone crisis and US crisis has affected the hotel industry since last two years. For some hotels who have put up new units in the last 3-4 years have found that the capital cost has gone up higher than expected because the interest rates have been more than budgeted. The interest during construction component which is about 15 percent has gone up to almost 30-35 percent in most of these new projects.
Also many of these new projects are set up on plots of land auctioned by the government as hitherto the government has been for example like in Delhi the Delhi Development Authority (DDA) or Ministry of Human development or the MMRDA or the Hydropower Development Authority, all the state bodies, government owning agencies auction it to the highest bidder. And that makes the cost of land as a component to the project cost extremely high.
Internationally, it is not more than 15-20 percent but in India it can go as high as 40 percent. Many hotels have a mismatch between the cash flows because the hotel industry is treated as a normal corporate. Two years back we convinced the Reserve Bank of India, the Ministry of Finance that we should be removed from the classified real estate category. It was done but 50 percent additional provisioning norm which was removed did not translate into actual rates of interest coming down.
It must have been down by at least 125-150 bps. And now the whole industry is in danger of being another endangered stress industry with about 8-10 companies going in for restructuring. So we hope that the markets will improve. There are indications that the economic outlook which would have improved if those initiatives would have been implemented. If the Bills are passed in the Parliament then investment activity will take place. The US and the European market remain lukewarm for tourism coming into India.
Positively, the beaches of Kerala and Goa are showing great prospects and they are chockablock. So that is a silver lining in our scenario.
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