Three foreign parties vying for JKH

Group to divest from off shore bunkering?

Ravi LADDUWAHETTY

Three institutional investors- Malaysian, Indian and British are now vying for premier blue chip corporate conglomerate John Keells Holdings PLC following the share dropping to Rs. 84 in the immediate aftermath of the Lanka Marine Services Ltd privatisation fiasco.

Market sources told Daily News Business yesterday that the attraction of the JKH share had dropped in the immediate aftermath of the LMS privatisation where a public monopoly became a private monopoly and where the JKH Group despite claims of high corporate governance codes had been tainted.

They also pointed out that at the current price of Rs. 84, the share was attractive for a conglomerate in the light of foreigners already owning 55% of the holding company shares.

Market sources also speculated that the highly diversified blue chip may also divest its off shore bunkering business in the light of the Sri Lanka Ports Authority having 30% of the business and the rest of the market having only 3700 tonnes of storage capacity which will mean that it might not be feasible. They say that the healthier profit margins are not in the off shore bunkering.

Meanwhile, Asia Capital Ltd in a report on JKH after the Supreme Court verdict on the Lanka Marine Services Ltd privatsation has said: “In accordance with the fundamentals rights case ruling on Lanka Marine Services (LMS) the Supreme Court ordered John Keells Holdings (JKH) to return the land which it currently utilises for bunkering operations within 30 days, thereby requiring LMS to vacate the premises by August 20, 2008.

However, an extension granted on September 8, allowed LMS to occupy the premises till September 12, whilst the handing over of facilities is currently under way.

The Supreme Court ruling also calls for the cancellation of the BOI status awarded to LMS, thereby requiring JKH to pay taxes with retrospective effect from December 2002 to date.

Whilst the company maintains that the applicable tax rate is 15%, in such a scenario the total one off payment (additional tax liability, customs duty, asset impairment, vacating the premises, staff compensation) is estimated at Rs.858 million.

However, considering an ordinary tax rate of 35% the losses are estimated at Rs.1.45 billion.

Subsequently, bunkering services are to be opened up for competition with eight licensed operators to share the facilities, including the main pipeline and the storage tanks. Whilst the increase in competition is expected to hamper the market share of LMS, it is evident that LMS will act to increase capacity via offshore storage.

Intense competition coupled with the higher costs of offshore bunkering is expected to insert pressure on the margins of LMS.

JKH, Group Chairman Susantha Ratnayake and Deputy Group Chairman Ajit Gunewardene were not available for comment.