Bank of China provides £305 million GBP loan to Sahara Group to finance the acquisition of Grosvenor House Hotel

Project narrative

On December 30, 2010, Sahara India Pariwar (also known as the Sahara Group) — an Indian conglomerate — announced the £470 million GBP ($722 million USD) acquisition of the Grosvenor House Hotel in London from The Royal Bank of Scotland Group by its unit Aamby Valley. Then, on October 20, 2011, the Bank of China (BOC) provided a £305 million GBP ($476.83 million USD) loan to Sahara Grosvenor House Hospitality Ltd — a special purpose vehicle (SPV) owned by Sahara India Pariwar — to facilitate the acquisition of Grosvenor House Hotel. The loan carried a maturity of 7 years and a floating interest rate, based on 3-month LIBOR plus a 2.5% margin. The loan matured quarterly and had interest payable quarterly in arrears on January 20, April 20, July 20, and October 20 of each year. As part of the terms of the loan, Sahara Grosvenor House Hospitality Ltd was required to hold £25,000,000 GBP in restricted deposit for the full term of the 7-year loan as a security against the amount borrowed. The deposit did not attract any interest. The bank loan was initially recognized at fair value with net of transaction costs of £5,046,753 GBP. The loan was subsequently measured at amortized cost, and finance charges were recognized in the statement of comprehensive income over the term of the loan. The bank loan is secured with fixed and floating charges over the assets of Sahara Grosvenor House Hospitality Ltd. The loan included cross-collateralization and cross default arrangements, tied to the New York Branch of BOC's $465.85 million USD loan to Sahara Plaza LLC and Sahara Dreams LLC, a pair of United States-based special purpose vehicles (SPVs) for the acquisition of a pair of New York hotels, the Plaza Hotel and The Dream Downtown Hotel, as captured by Record ID#110809. Sahara Grosvenor House Hospitality Ltd granted security in favor of BOC over 70% and 85% of the equity interests in Sahara Plaza LLC and Sahara Dreams LLC respectively as additional security for the Grosvenor House Hotel loan, and Sahara Grosvenor House Hospitality Ltd granted second-ranking security in favor of BOC over the assets that secured the Grosvenor House loan as part of the security package for the Plaza/Dreams loan. A default under the Plaza/Dreams Loan would constitute a cross default under the Grosvenor House Hotel loan, entitling BOC to enforce the securities granted under both loans. In the event of default under the Grosvenor House Hotel loan, subject to certain conditions, BOC was required to enforce its security over the assets securing the Grosvenor House Hotel loan before it would be entitled to enforce its security over Sahara's interests in Sahara Plaza LLC and Sahara Dreams LLC, and only if there remained debt owed to BOC as part of the Grosvenor House Hotel loan after the enforcement of the Grosvenor House Hotel securities. Sahara expected the acquisition of the Marriot International-operated 420-room hotel in Park Lane, London would facilitate the group's hold in the luxury hotel market. Sahara planned to add restaurants, a night club, a business center, and other facilities to the Grosvenor House property. On September 19, 2012, in its annual financial statements Sahara Grosvenor House Hospitality Limited noted that it was technically in breach of its covenant obligations under the BOC loan agreement because it had failed to supply audit accounts to BOC with 180 days of the company's year-end date (that date being December 29, 2011). Still, Sahara Grosvenor House Hospitality Limited believed that BOC foreclosing on the loan was an ‘unlikely event’ and that Sahara had enough resources to pay the full loan amount if BOC did foreclose. In 2013, BOC send a letter to Sahara India Pariwar inquiring about possible outcomes of the legal battle between Sahara and the Securities and Exchange Board of India (SEBI); SEBI had issued an order in 2013 to attach several Sahara properties. Sahara provided the information to BOC, which was said to be discomforted by the SEBI attachment order. The (principal) amount outstanding under Bank of China's loan to Sahara Grosvenor House Hospitality Ltd was £289,750,000 GBP as of June 2, 2014. In 2014, it was reported that Sahara was trying to sell the Plaza, Dream, and Grosvenor hotels to cover the $3 billion USD bail for its founder and chairman Subrata Roy, who had been in jail in New Delhi, India for a year because Sahara India Pariwar had failed to comply with a court order to refunding billions of dollars in outlawed bonds to investors. In early December 2014, it was reported that Mirach Capital Group (an company backed by investors and a wealthy Indian family) offered a one-year $1.6 billion USD loan to Sahara Group with an interest rate of 11%, with a portion around $900 million USD to be used to retire BOC debt on the three hotels and the remainder to pay the bail of Roy. Failure to repay would mean that Mirach would gain ownership of the three hotels. The loan had to close by February 20, 2015, which it failed to do and thus was not made. In 2014, Sahara Plaza LLC and Sahara Dreams LLC breached certain covenants in respect of their borrowings from BOC and fell into technical default. Because of the cross default and cross-collateralization arrangements between these companies, BOC, and Sahara Grosvenor House Hospitality Ltd, Sahara Grosvenor House Hospitality Ltd also went into default over its debt of BOC. As a result, the bank loan was disclosed within short-term borrowings and capable of being called on demand. In addition, unamortized loan arrangement fees of £2,731,747 GBP as of December 31, 2014 were expensed in full. The defaults were not resolved and default interest of 2% was charged in addition to Sahara Grosvenor House Hospitality Ltd's standard variable interest rate on the secured loan from March 2, 2015. Since these debts were not resolved, also on March 2, 2015, Deloitte LLP was appointed as administrator of Sahara Grosvenor House Hospitality Ltd. In March 2015, Sahara Grosvenor House Hospitality was put into administration and Grosvenor House hotel was put up for sale. At the time of administration, Sahara India Pariwar stated that Deloitte LLP would return control of Sahara Grosvenor House Hospitality Ltd to Sahara's directors after the refinancing of the loan. The Dream Hotel was also marketed for sale. In early June 2015, the Reuben Brothers Limited entered into a $800 million USD loan with Sahara to refinance the BOC loan for Plaza, Dream, and Grosvenor paying off the BOC loan and stopping the sale process of Dream.