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Venture capitalism reaches Indian hospitality shores

Savio Rodrigues - Mumbai

The much-talked about and forecasted venture capital funds earmarked as a fillip to the development of hotel projects in the country is finally stretching its arm towards the Indian hospitality industry. For the relatively cash-starved hoteliers fretting over sourcing capital to fuel expansions, this could not be better news.

In the spate of over a month, the hospitality industry has witnessed the forging of relationships between leading international and Indian fund companies for hotel related projects. WestBridge Capital Partners has made a significant equity investment in the Royal Orchid Hotels and acquired 10 per cent stake in the group for Rs 250 million, ICICI Venture Funds also acquired 26 per cent stake in the equity of the Hyderabad-based Viceroy Hotels. Joining the bandwagon is Sarovar Hotels which has inked an agreement with US-based Bessemer Venture Partners and New Vernon Advisory Service Pvt Ltd to help fund the expansion of its 'Hometel' brand of budget hotel - amount to the tune of Rs 100 crore. Similarly, leading Indian hotel companies such as the Bharat Hotel and Oberoi Group of Hotels are also in talks with leading international funding companies to future growth plans.

Industry experts attribute this growing dependency to the influx of NRI funding, primarily the result of an easing of government norms has facilitated and pushed this trend. Besides financial institutions like TFCI, IDBI, ICICI, Indian Bank, etc, Indian hoteliers now also have access to international funds like the US$ 150 million Brooke International Fund, US$ 50 million Dalmia Capital Fund, US$ 100 million Indian Real Estate Opportunities Fund, the Merlion Fund of Temasek Holdings, Tishman & Speyers, JP Morgan Partners, Blackstone Group, Warburg Pincus and the fund available from US-AEP for those developing environmentally sensitive hotels.

According to Akshay Kulkarni, manager - leisure & hospitality services, Knight Frank India, "Most hotel companies in India today are looking at capitalising on the boom that the Indian tourism industry is witnessing. However, funds to develop projects or grow their respective hospitality business are scarce. On the other hand, venture capitalists have been actively scouting the Indian hotel market for sometime now and foresee a profitable future. Therefore, the timing for both hotel companies and venture capitalists to further each other's interest in Indian hotel sector by working together is just right."