Tourism Finance Corp. of India, which has funded the world's top-rated spa, plans to sell shares and set up a $100 million private equity fund to buy stakes in hotels catering to domestic travelers, the chairman said.
The money for the seven-year fund will be raised from banks and high-net-worth individuals, Archana Capoor, chairman and managing director, said in an interview in New Delhi, where the company is based. Tourism Finance plans to sell new shares to select investors to more than double its equity capital.
A doubling in India's middle class, estimated at 50 million by McKinsey & Co., has in the past decade spurred demand for hotels and resorts, driving an almost threefold rise in Tourism Finance's shares this year. ITC Ltd., the Indian partner of Starwood Hotels & Resorts Worldwide Inc., is expanding its brand of cheaper lodgings to 100 to tap demand in smaller towns.
“The future growth is not in the eight big cities, the growth is in the smaller towns,'' Capoor said yesterday. “If someone wants to set up a chain of hotels, it's one of the best models. You can't have all your eggs in one basket.''
Tourism Finance has lent money to IHHR Hospitality Ltd., which operates the Ananda in the Himalayas, rated as the best destination spa this year by the readers of Conde Nast Traveller magazine. The spa resort is located 260 kilometers (162 miles) north of the capital New Delhi.
“Tourism is set to grow with economic expansion and hotels are bound to perform better,'' said K.D. Mehru, vice president, research, at brokerage Darashaw & Co. in Mumbai. “Equity returns will be much higher than interest income.''
Tourism Finance will invest as much as 500 million rupees ($13 million) in the fund, Capoor said.
The company had 663.14 million rupees in cash and short- term investments as of March 31, according to data compiled by Bloomberg.
Tourism Finance was set up in 1989 by IFCI Ltd. along with other state-run banks. IFCI, a state-run lender bailed out by the government in 2003 because of bad debt, owns 19 percent of the company. State Bank of India, the nation's biggest, holds 7.4 percent. Life Insurance Corp., the nation's biggest, owns 6.22 percent and Bank of India, the country's seventh-biggest by assets, owns 3.8 percent. The public shareholding is 39.3 percent, according to the company's Web site.
Companies and investors may turn to hotels in smaller towns as growth in room rents in the bigger cities is expected to slow.
The number of five-star luxury rooms will increase to 58,000 in the country's 12 biggest cities in five years from 27,500, Crisil Ltd.'s research division estimates. The average occupancy will drop to 64 percent from 75 percent, it said.
Room tariffs at luxury hotels will rise at a slower pace to 11,200 rupees a night by 2012 from 8,900 rupees, Crisil said. Five years ago the average room tariff was 3,960 rupees.
The tourism industry in India is set to grow an average 7.9 percent between 2008 and 2017, the second-fastest pace after China's 9.1 percent, the London-based World Travel & Tourism Council says on its Web site. The council has forecast investment in travel and tourism in India may increase to $43.9 billion in 2017 from an estimated $18.1 billion this year.
Lotus Hotel Investment Fund is aiming to raise $1 billion to build and buy hotels in Asia, some of which will be managed by Carlson Hotels Worldwide, the operator of the Regent and Radisson chains.
Lotus seeks to raise the money in the next five weeks, Martin Rinck, president of Carlson Hotels' Asia Pacific unit, said in an interview today.
The fastest wage growth in the Asia-Pacific region is giving more middle-class Indians money to spend on leisure. New York-based consulting firm McKinsey & Co. defines members of the middle class as people with annual disposable income of $4,380 to $21,890.
Tourism Finance plans to sell new shares to increase its equity capital to as much as 1.5 billion rupees from 670 million rupees, Capoor said. Directors will take a decision on Oct. 22, she said, without giving the number of shares to be sold.
“This will increase our net worth and allow us to lend more to a single entity,'' said Capoor. Tourism Finance can lend a maximum of 20 percent of its net worth to a single entity, as per local rules, she said.
Source: Bloomberg