DB Realty, which recently went public, is working to recall its Rs 663.84 crore corporate guarantee provided to DB Hospitality Mauritius, a closely-held special purpose vehicle of the DB Realty group, that incurred a Rs 102.86 crore loss in the financial year ending March 2009.

Jayesh Doshi, group chief financial officer, DB Group, told Financial Chronicle that they would soon substitute the DB Realty guarantee with another guarantee as DB Realty does not hold any equity stake in the hospitality business venture. He declined to provide further details due to Sebi restrictions on companies that are going public.

As of the end of financial year 2009, DB Hospitality Mauritius had also run up a negative net worth of Rs 114.1 crore. A corporate guarantee on behalf of this company therefore, said experts, could potentially expose the listed entity to a situation where it might have to bail out the closely-held arm. The move to substitute the guarantee is significant, analysts said.

Officials associated with the DB Realty IPO said the company has disclosed a $138 million corporate guarantee extended on behalf of the Mauritius SPV in its red herring prospectus filed with the capital markets regulator.

DB Hospitality is building up a slew of 300-odd room five-star hotels pan-India. Top DB Group officials said the loss recorded by the Mauritius arm is due to the fact that the projects are in investment mode and that revenues will come only after the hotels are operational. “We will be infusing a sum of around Rs 1,000 crore as equity to implement the hotel projects. The balance is being funded by debt raised from domestic banks,” said Vinod Goenka, chairman, DB group, told Financial Chronicle. DB Hospitality, is controlled by the promoters of DB group and private equity funds Trikona Capital and IL&FS Wealth Managers.

“We have handed over both these smaller hotels to the Meridien for managing while the bigger hotels that we are constructing will be managed by the Hyatt group,” said Goenka.

Senior DB group officials said that since the two hotels that are up and running are much smaller than the new ones being constructed, the revenues from the same are not enough to cover the start-up costs and investments of around Rs 4,700 crore being made to develop luxury hotels at Goa, Pune, Mumbai and Delhi International Airport, as also a budget hotel at Mundra in Gujarat.