GIC Teams with India’s IHCL for $600M Hospitality Investment JV

Singapore’s sovereign wealth fund, GIC and South Asia’s largest hospitality group by market capitalization, IHCL, have agreed to an investment partnership which is expected to be worth $600 million over the next three years, the National Stock Exchange of India-listed company announced on Friday.

The subsidiary of Tata Group said that it is working with GIC to set up an investment platform with which to acquire fully operational luxury and upscale hotels in key lodging areas of India, including distressed or underperforming hotels, that can be turned around under the company’s management.

“This collaboration is in line with Aspiration 2022 and our vision to scale up, create greater enterprise value and make IHCL South Asia’s most iconic and profitable hospitality company,” Puneet Chhatwal, IHCL’s managing director and chief executive officer said in a statement which fit the joint venture into IHCL’s master plan for expanding its business over the next three years.

GIC’s $380B War Chest

The partnership comes less than two weeks after Singapore’s central bank announced that it would be transferring S$45 billion ($33 billion) in foreign exchange reserves to GIC for longer-term investments, and follows a number of big-ticket real estate investments in India over the past two years by the fund, which even before this latest injection was estimated to manage some $359 billion in assets.

Under the investment framework agreed to by GIC and the Indian Hotels Company Limited, each new acquisition will be made via a separate, independently funded special purpose vehicle, with 30 percent of the equity for the deals to be contributed by IHCL and the remaining 70 percent to come from GIC.

The hotel assets will then be managed under one of IHCL’s existing brands, which include Taj, SeleQtions, Vivanta and Ginger.

“Through this platform, we expect to acquire strategic and marquee assets that need new ownership, branding and positioning,” said Chhatwal.

Race to Open One Hotel Every Month

The Mumbai-based hospitality group, best known for the Taj Mahal Palace Hotel, which was the scene of one of the country’s worst terror attacks in 2008, has pledged to increase the company’s operating profit margins by 8 percent in five years, as part of its expansion plan.

Three months ago, Chhatwal promised that IHCL “will be opening one hotel every month in the next financial year,” and the company has already added 20 new hotels to its portfolio since January 2018.

IHCL sees the investment agreement with GIC as allowing it to pursue acquisitions while moderating its capital expenditures as the company repositions existing brands and adds new brands to its inventory.

GIC Betting on the Indian Hospitality Sector

“GIC is pleased to partner with IHCL, a leading hotel owner and operator, to build a quality hospitality portfolio in key destinations across India,” said GIC Real Estate chief investment officer Kok Sun Lee.

The tie-up with the Indian Hotels Company continues a series of real estate investments in India by Singapore’s sovereign wealth fund that have totalled almost $2 billion in the space of two years, with over $740 million in hotel assets.

“As a long-term investor, we are confident in the outlook of India’s hospitality sector,” Lee said.

SIngapore’s sovereign fund will be facing off against some familiar competitors in India’s hotel landscape, including Canada’s Brookfield Asset Management, which agreed in March this year to purchase a set of four hotels, a hospitality development project and branding rights to one of India’s elite hotel chains from Hotel Leela Venture for $576 million.

Singapore in India Real Estate for the Long Term

The agreed investment framework with the Indian Hotels Company represents a continuation of the sovereign wealth fund’s pursuit of opportunities in Indian real estate.

In August 2017, the national investment vehicle made its what is still its biggest property investment in the country to date, when it purchased a third of DLF Cyber City Developers, the property rental subsidiary of Gurgaon-based builder DLF, for $1.4 billion.

And more commitments have followed.

Only last August, GIC spent $143 million to purchase a 49 percent stake in Provenance Land, the developer of India’s first Four Seasons hotel, and in June last year it took a five percent stake in Mumbai developer Godrej Properties, India’s largest listed builder, for $150 million.

Just over a year ago, the Singaporean fund  bagged a 40 percent stake in the office division of Prestige Estates Projects for $200 million.