Starwood may exit Le Meridien assets in Chennai, Coimbatore

Global hospitality chain Starwood Hotels & Resorts India is reportedly looking to sell a majority stake in its Le Meridien properties in Chennai and Coimbatore for about Rs 1,400 crore and could tie up with sovereign wealth funds for the purpose, sources aware of the development said.

"There have been overheads, and Starwood has been looking at  about Rs 1,400 crore for both hotels. The chain could tie up with private equity players or sovereign wealth funds as part of cutting down on rising operating expenses and room surplus. The mid and upscale hotel market has been struggling in the wake of the global recession and Starwood has been worried about falling occupancy rates," sources said.

Starwood India officials were not available for comment.
Critics have wondered if Starwood has been expanding too rapidly in the Indian hotel market where the rapid increase in supply of hotel rooms has been offset against slowing economic growth and cut-throat competition from other foreign operators.

Even Indian luxury hotel chains such as Hotel Leela Venture Ltd and Royal Orchids Ltd have been selling off or part-owning their assets in recent years to ease debt.

Capitalising on the current distress in the Indian hospitality sector, hotel chain operators like Starwood and France's Accor SA have been opting to go in for the acquisition route instead of greenfield development. Starwood has been teaming up with investors to acquire existing hotels from their owners and refurbished the assets before operating them under their own banners.

Starwood Hotels, which has 1,200 hotels in 100 countries, was planning to open 100 hotels in India by 2015 through either the greenfield or management contract routes. At least 20 of the 40 hotels operated by the chain in India are operated under franchise agreements.

However, sources said that even the acquisition route has posed issues for Starwood given the breakeven time and revamping costs involved.

The Indian hospitality sector is expected to grow to $36 billion by 2018 from $17 billion in 2008, according to research firm Technopak Advisors.