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by Ravi Ladduwahetty

John Keells Holdings Ltd Group Chairman Vivendra Lintotawela is confident that the Group's equity stake in Asian Hotels could rise to 100 percent after the Mandatory Offer was complete.

Vivendra Lintotawela

He was very confident that the JKH Group could recover the Rs. 4.1 billion invested in Asian Hotels and the other subsequent investments such as the mandatory offer within the first three years. He said that the Private Placement and the Rights Issue will not result in the dilution of the Earnings Per Share and that the shareholders were confident that they were getting value for money.

Here the JKH Group Chief in an interview with the Daily News.

Q: The John Keells Holdings Group has made a substantial investment of Rs. 4.1 billion into Asian Hotels for a 60.5 equity stake which is the largest investment of the Group since the Rs. 1.2 billion which went into purchasing Lanka Marine Services Ltd. What is the estimated Return on Investment (RoI) and the pay back period?

A: The potential exists to go up to 40 percent, though it is not evident right now. The recovery period varies between one to three years. It all depends on how well we run it.

Q: Rs. 4.1 billion is a colossal investment, judging by any Sri Lankan corporate standard. Don't you think that the Group could have received a better return from a similar investment in the Maldives where the Group already has hotel interests?

A: No. We believe in this country. We are better strategically placed in Sri Lanka and we have better things to show in Sri Lanka as a corporate entity, rather than the Maldives, which is only an island.

Q: Going by the purchase itself, it appears as if the strategic acquisition is two pronged from the leisure perspective and a real estate development perspective. What are the synergies you are looking at?

A: As it is, Asian Hotels can pay for itself. They are generating revenues and they are doing well in their own right. The real estate aspect is only a bonus.

Q: You said that the Private Placement is to be held prior to the Rights Issue. How confident are you getting the desired results from the private placement from the foreign investors? Can you name them?

A: We are 100 percent confident. All that has been arranged. Many of them think that this is an opportune moment to join the Group. The names cannot be revealed at this stage.

Q: You said that the price of the JKH share for the Private Placement will be the price of the share on the day of the Extraordinary General Meeting which will be market driven. What if the price goes up to Rs. 150 or slides down to Rs. 110 ?

A: The price for the Placement will be determined by the Board of Directors which will be based on the market price in the last two weeks leading to the EGM.

Q: What response do you evoke from the shareholders with the JKH share trading between Rs. Rs. 142 and where it slid down to Rs. 128 where there was profit taking last week?

A: Nothing. It is up to the shareholders to realise the value of the shares of the company. The shareholders are backing us because they know that there is value for them.

Q: Will the private placement disappoint the shareholders where the Earnings Per Share (EPS) will be diluted?

A: No. This is because they are paying a higher price than for the Rights Issue. They have the opportunity to buy it at the price that is market driven.

Q: What expectations does the JKH Board have for the Group's bottomline with the Asian Hotels acquisition?

A:We have not gone into that just yet. But, this is going to contribute significantly to the bottomline to the Group.

Q: Don't you think that the option of debt financing for the AHOT purchase would have been a better option in the light of the JKH share being diluted following equity financing?

A: No. This is because we do not want to leverage the company to a level that we cannot go into any more investments.

Q: Are you confident that the AHOT purchase will yield the correct returns?

A: Within the first three years, depending on the manner in which it is run.

Q: It is rumoured that the Group and the financial community will be artificially diluting the share price at the time the private placement takes place?

A: Then, the people who are supposed to be diluting the price and who are claiming to do so, can be buying it at that price.

Q: Is the second condominium at the Colombo Plaza premises at Colpetty on line?

A: Yes. We are hoping to go ahead with that.

Q: What is the basis that you hope to operate with the Banyan Tree Group? Will it be on the basis of a management contract or will it be on a profit sharing basis?

A: That has not been determined by the Board of Directors yet.

Q: After the Mandatory Offer of Rs. 30, what equity share does the JKH Group hope to go up to from the present 60.5 percent?

A: We are hoping to go up to 100 percent.

Q: Then, will you be aiming to de-list Asian Hotels on the Colombo Stock Exchange?

A: No. We will not be doing that.

Q: At the time you have the absolute ownership, will you making arrangements to have a minor equity stake of AHOT divested to a strategic partner such as Banyan Tree when you have the option of selling the shares higher at around Rs. 40-60 while the purchasing price was Rs. 30?

A: No. We will not be doing that either.

Q: Former AHOT Directors Viren Perera and Thilan Wijesinghe were integral parts of the company prior to your acquisition. They have resigned. However, will you be reinviting them to the Board to procure their expertise?

A: They have resigned. We will be procure their expertise as and when they are required.

Q: Coming to the rest of the operations of the JKH Group, it is well known in market circles that Keells Food Products is planning to outsource its production to Grain Elevators. Your comments

A: If Keells Food Products cannot meet the costs of production and the cost of sales, we will definitely have to outsource the production so that the operation will be viable.

Q: What about the freehold land of two and a half acres within the Ceylon Cold Stores premises ? What plans for the development of this?

A: We have set up a real estate company for the development of such premises within the Group. A Committee has been set up and they are looking at the real estate development options.

Q: It is believed in the market that Marine Oils in the market have risen sharply at the Colombo Port since the purchase of Lanka Marine Services by the JKH Group from the Ceylon Petroleum Corporation. Some say that a public sector monopoly is now a private sector monopoly. How would you react to that?

A: As you know, Sri Lanka does not have these products. We have to import them from Dubai, India or Singapore, Our rates are in consonance with market prices. In fact, prices have reduced in recent times.

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