Session

Project financing: Assessing the region

Due to a huge gap in the demand and supply of rooms in the hospitality industry, financiers are standing by fund projects. But caution is what the experts advise while allocating funds. Sourav Goswami, MD of Walton Street Capital-India, said, "The financial institutions should be well-persuaded to fund the hospitality sector. At the moment they are more comfortable funding existing or operational hotel chains." He explains that not much has changed in India from the Asian perspective.

Gabriel Stubbe, VP of Grove International Partners, expressed, "Owing to steep increase in terms of budget, developers will opt for mixed use than just a hotel property." Supporting his views was Sundaram Rajagopal, MD of Lehman Brothers, who said, "The trend is business hotels with mixed use development." He elaborated that alternative hospitality like guesthouses is also coming up to fulfill the needs of the market. On the question of debt funding, Rahul Nair, head of investments (Hospitality) at Future Capital Holdings, expressed that debt is available for the right products. He said that financiers are looking for quality partners. On the other hand, Goswami explained that private equity as a deal also has wide acceptability. He explained that owing to the massive opportunity for budget category hotels, private equity funds are more apt for growth. However, he warns of the many formalities it brings.

Sanjay Bansal of Ambit Finance broached the broad-ranging issue of cover, cost and tenures to which Goswami added that in most of the projects these prerequisites are included. Explaining the government's role, Nair said, "The RBI needs to amend regulations by considering the hospitality industry on par with other developed industries and the infrastructure sector." He said that the RBI has already asked banks to provide higher provisioning and higher risk weight, which translates into higher capital adequacy for funding to real estate sector. Speaking about the nuances of funding, the panel agreed that the duration of loan should be increased (today financial institutions are not funding beyond a period of seven to nine years). "The industry being capital-extensive and having a long gestation period, repayment of loans beyond 11 to 15 years can make projects feasible and open funding options," expressed Nair. Concluding the session, Bansal cited location and duration as important aspects in terms of project financing.