Covid-19: Taj-GVK Hotels seeks moratorium on loan repayments from lenders

Faced with severe pressure on revenues, TajGVK Hotels & Resorts Ltd, a joint venture of Tata group’s Indian Hotels and GVK group, is approaching lenders for a moratorium on loan repayments under RBI’s Covid-19-Regulatory Package.

TajGVK did not honour payment obligations falling due in March 2020, pertaining to a Rs 94.75 crore term loan, according to rating agency ICRA.

The rating agency affirmed “A+” rating for long term loans and “A1+” for short term loans. However, it revised the outlook on rating from “stable” to “Negative”.

ICRA said it has not treated the missed payment as a default for now, despite absence of a formal approval from the lenders allowing for payment relief. This is based on expectations that a formal approval for rescheduling the loan would be received soon, as permitted by the RBI. Non-recognition of default in this case is also in line with the guidance provided by Securities and Exchange Board of India (SEBI).

If the lenders do not approve of the moratorium in due course, it would review the above stance on default recognition, ICRA added.

All the six properties of the company remain shut due to the lockdown announced by government to contain the spread of the Covid-19 pandemic. The duration and scope of the lockdown is still uncertain. Its impact on the economy and discretionary spends in the coming months will have a significant impact on the company’s performance.

Hotels, including TajGVK, have high operating and financial leverage, making these highly susceptible to any reduction in revenues. The company will not have any debt repayments till end of May 2020, taking into consideration the expected moratorium. The sharp contraction in revenues will impact the company’s liquidity position, given that TajGVK would still need to incur non-deferrable fixed expenses.

TajGVK’s liquidity position is adequate with cash, liquid investments and undrawn overdraft facility of Rs 30 crore as on March 31, 2020. As against these sources of cash, the company has non-deferrable fixed expenses of Rs 5 crore per month and principal and interest obligations of Rs 8-9 crore due in June 2020 (taking into consideration the impact of the moratorium).

Given the discretionary nature of spend, the travel and tourism industry has always been highly susceptible to exogenous shocks like wars, terror attacks, diseases and meltdowns. Covid-19’s impact is expected to be far more severe and broad-based than during the previous instances.