ICRA: No ceiling cap on loans outstanding to avail ECGLS comes as a relief for larger hotel companies

The Indian hotel industry is grappling with challenging times triggered by the Covid-19 pandemic. Occupancies fell to lows of ~13-15% during the first few months for FY2021 and demand was largely limited to Vande Bharat repatriation travelers, medical/other frontline workers, stranded travelers and work-from-hotel guests.

After hotels reopened gradually from Q2 FY2021, demand came from staycations, drive-to-leisure and wedding Meetings, Incentives, Conferences, and Exhibitions (MICE) and occupanciesinched closer to 50% in Q4 FY2021 providing a healthy dose of optimism to the industry. However, the second wave has put a temporary brakes on the recovery prospects, with occupancy again dipping sequentially from ~45% in March 2021 to 32-34% in April 2021 and further to about 25-27% in May 2021.

Giving more insights, Ms. Vinutaa S, Assistant Vice President and Sector Head, ICRA Ratings said,“About 70% of ICRA’s hospitality portfolio applied for moratorium during the first wave. Subsequently, most companies availed debt under ECLGS 1.0 and 2.0, and through other long-term debt to shore up their liquidity for meeting operational and financial commitments.

Some companies also resorted to equity fund raising from investors and promoters. The Government has recentlyremoved theRs. 500.0 crore ceiling cap on loan outstanding for eligibility under the ECLGS 3.0, subject to a maximum assistance of Rs. 200 crore or 40% (of borrowings), whichever is lower. This is a welcome move and is expected to benefit larger hospitality companies. About 32% of ICRA rated debt is incrementally eligible for loan availment because of the cap removal.”

The negative rating actions in the hotel sector were at an all-time high in FY2021 with 74% of ICRA’s hotel portfolio impacted in the post-Covid scenario. A severe impact of the pandemic has resulted in a sharp increase in downgrades.

About 70% of the entities are on negative credit outlook, compared to 92% of the entities with stable outlook in January 2020.The industry credit profile is expected to weaken with thesecond wave derailing the recovery momentum and this could result in more negative rating actions.

The RevPARs in FY2022were expected to be weaker than that post the Global Financial Crisis in 2010, even before the second wave and this is only expected to be impacted further with the rise in infections. Currently, ICRA expects the occupancy and RevPAR to be adversely impacted, atleast over the next two-three months because of the second wave.

The industry RevPARs would be tied to the pandemic timelines, although widespread vaccination rollout would ease the situation to an extent. The situation is still evolving and remains a monitorable. Recovery to pre-Covid levels is still atleast two years away.