Hotel Leelaventure said on Wednesday it has signed a pact with Travancore Enterprises to transfer its hotel property in Kerala to a special purpose vehicle (SPV), which would be overtaken by the latter for Rs. 500 crore.

Hotel Leela will continue to operate the hotel through a long-term management contract to be finalised with the SPV, it said in a statement.

Earlier in the day, the hotel operator’s vice-chairman Vivek Nair told Reuters, it had agreed to sell the property at Kovalam to non-resident Indian industrialist B. Ravi Pillai, who owns Travancore Enterprises for about Rs. 500 crore.

The decision was taken to reduce the company’s debt and the hotel operator is actively reviewing proposals for other management contracts in other parts of the country, it said.

Leela Group bought this property in 2005 for about Rs. 150 crore, a source with direct knowledge of the matter said.

The group, which manages luxury hotels in Bangalore, Gurgaon, Mumbai, New Delhi and Goa among others, has a debt of around Rs. 3,800 crore.

Indian hotel chains are raising funds but preferring to use the cash to clean up their balance sheet and complete existing projects than draw new plans.

Most Indian hoteliers have been struggling with mounting debt since the global slowdown of late 2008 that forced a reality check on the exuberance of previous years, when they bought land at astronomical prices and borrowed generously.

In March, the hotel chain had said it intended to raise about Rs. 950 crore over next two years via sale of property and development of real state, Nair had told Reuters in March.

Last week, Hotel Leela reported a net loss for the quarter ended June on higher interest and depreciation costs.

The company had last month executed a joint venture with Prestige Estate Projects to develop premium apartments on part of its land bank in Bangalore. Hotel Leela expects to generate about Rs. 150 crore over 4 years through this development.

Shares of Hotel Leelaventure closed at Rs. 38.20 , down 1.55% in a firm Mumbai market.

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