How India's Sahara Group could hold onto The Plaza Hotel

India's Sahara Group CEO Subrata Roy could be dragging his feet on selling three of the group's major hotel assets, even as rumors swirl around other companies looking to acquire the luxury properties—The Plaza and Dream Downtown in New York and London's Grosvenor House Hotel. 

Roy's legal troubles have been ongoing for years, since the market regulator Securities and Exchange Board of India demanded that Roy and his company return several thousand crore (one crore is worth 10 million rupees) that the public invested through Optionally Fully Convertible Debentures (OFCDs), debt securities that allow an issuer to raise capital. In return, the issuer pays interest to the investor until the maturity. The investor of these debentures has the right to convert the debt into equities of the issuing company at a price that is normally decided at the time of the issue. SEBI determined the OFCDs were illegal, leading to a protracted court battle and prison time for Roy.

To raise the necessary funds, Sahara began looking to offload the hotel assets, among others, but negotiations with potential buyers had mixed results.

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Earlier this week, it was reported that Ashkenazy Acquisition had acquired London's Grosvenor House Hotel from The Sahara Group. Meanwhile, in May, Saudi Prince Al-Waleed Bin Talal, who owns a stake in the Plaza Hotel, reportedly partnered with Ashkenazy for the buyout of Sahara’s stake in the property. At the time, Ashkenazy and Al-Waleed were expected to purchase the remaining shares from Roy and a "confusing tangle" of other stakeholders.

But according to Frankfurt-based attorney Ami de Chapeaurouge, a sale of these two hotels and the Dream Downtown in New York City may never be finalized thanks to that “confusing tangle” of stakeholders and an upcoming opportunity to repay the debt Roy still owes SEBI.

“As far as we know, Subrata Roy never intended to sell these three hotels as they confer great prestige on him personally in London and New York society,” de Chapeaurouge exclusively told HOTEL MANAGEMENT, noting the number of potential sales that have fallen through over the past several years. “It leads me to assume that for reasons of prestige, London and New York being so important for upper echelons of Indian society, he just wanted to keep them.”

A Tangled Web 

“The ownership structure [of the portfolio] lies 70 percent with the Sahara Group and 5 percent with the Chatwal family trust (who still own a 15-percent minority stake in the Downtown Dream Hotel),” de Chapeaurouge continued. The remaining 25 percent belongs to to Prince Al-Waleed.

The principal creditors for the three hotels (in the amount of anywhere between $900 million–$1.2 billion) are Britain's Reuben Brothers, some of the wealthiest investors in the world with a reported net worth that exceeds $14.4 billion. They are vying to gain control over the three hotel properties in what is known as a “loan to own” buyout technique. 

“Once the debt load is no longer serviced properly (timely interest rate payments and return of principal pro rata), the Reuben Brothers can—either by way of a debt-equity swap or a share pledge enforcement (as the shares of the respective holding companies have been pledged to the Reuben Brothers as collateral/security for their loan which they purchased from The Bank of China several years ago, and augmented by bailing out the bankrupt Grosvenor House Hotel in early January 2017)—obtain control,” de Chapeaurouge said. 

Due to the debt papers drawn up by the Reuben Brothers, de Chapeaurouge said, the three hotels can only be sold as a package, making the reported sale of the Grosvenor House unlikely. “Because of the debt covenants, the three properties are so intricately intertwined that it would be virtually impossible to carve out just one of them and not acquire the other two simultaneously.  

“However, this only works with the consent of the Sahara Group who, as far as I can see it, have denied such a deal with [Ashkenazy]. They seem to have quite different buyers and a totally different acquisition structure in mind.”

As such, the rumor that the Ashkenazy Acquisition would buy the Plaza with the Saudi Prince seems unlikely. “There is no explosive bomb that would allow a minority shareholder to exercise the right of first refusal,” de Chapeaurouge said.

Another Way Out

Earlier this month, India’s Supreme Court ordered Roy to pay Rs 552 crore to honor the check given to SEBI by July 15 or “face consequences,” as the Indian Express reported at the time. Specifically, the court suggested that Roy complete the court-ordered sale of the company's Aamby Valley property to cover the amount. “The principal amount he has to pay is Rs 9,000 crore. At this rate of Rs 400-500 crore, it will take a lifetime. Sell Aamby Valley. Finish it,” Justice Ranjan Gogoi said from the bench.

The value of the property is officially estimated at Rs 43,000 crore, Mint reported, but the market value of this property is likely to be higher.

That could be the key for Sahara, which has already returned approximately Rs 13,000 crore of the outstanding Rs 24,000 crore to SEBI so far. If the sale of Aamby Valley goes through at market value in the necessary timeframe, Roy could both pay off his debts and keep his prized assets in London and New York, saving face and ending his legal woes in one swoop.

“The deeper story is that Subrata Roy is not only a very large employer, he’s a folk hero,” de Chapeaurouge said. “Half of Indian society sides with him, and half with the government. It’s the most spectacular case in front of the Supreme Court of India.”

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