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Galleon Fund to exit JKH?

Share buy back to cost Rs. 2.3b:

Reasons attributed by top analysts for JKH to buy its own share, were to stem the share from falling further. But they pointed out that it was ridiculous for the company to offer the share at Rs. 90 when it had fallen in the open market to Rs. 78 as at yesterday

Market analysts were agog yesterday with rife speculation that US based Hedge Fund Manager Raj Rajaratnam’s Galleon Fund was exiting its stake in John Keells Holdings.

The reason they attributed it the blue chip corporate’s share buy back option, billed to cost Rs. 2.3 billion.


Susantha Ratnayake                               Ajit Gunewardene

JKH Group Chairman Susantha Ratnayake and Deputy Group Chairman Ajit Gunewardene. Both were appointed to the JKH Main Board on the same day in 1993 made Joint Managing Directors on the same day in 2004 and Chairman and Deputy Chairman on the same day in 2005.

They said that the Galleon Fund has been selling with the Fund owning 21 million JKH shares as at March 31, 2008 which has now reduced to 18 million shares and the fall of the US markets has resulted in the Fund cutting off their exposure in emerging markets such as Sri Lanka.

Some of the other reasons for the possible Galleon Fund pull out have been the macro- economic fundamentals in Sri Lanka and also JKH’s credibility/corporate governance too being negative among investors following the Supreme Court judgment on LMS.

Reasons attributed by top analysts for JKH to buy its own share, were to stem the share from falling further. But they pointed out that it was ridiculous for the company to offer the share at Rs. 90 when it had fallen in the open market to Rs. 78 as at yesterday.

The total repurchase cost of the JKH share which was offered at Rs. 90, which is to cost Rs. 2.3 billion will be financed by cash balances and short term investments.

The number of issued shares which is now at 636 million will be reduced to Rs. 610.6 million shares.

It is expected that part funds for the buy back will be from proceeds of the sale of the 20% stake in Associated Motorways amounting to Rs. 1 billion. With this development, there is also a provision of Rs. 126.5 million which will be the foregone interest income after a tax saving of Rs. 6.8 million.

JKH Group Chairman Susantha Ratnayake and Deputy Group Chairman Ajit Gunewardene were not available for comment yesterday as to what basis the share was to be bought back at Rs. 90 when the market price was Rs. 80 and whether there was a lack of confidence in the JKH share.

Other unanswered questions were whether there was a conflict of interest in the conglomerate buying back its shares where Directors were also shareholders and whether it was fair by the existing shareholders to buy at Rs. 90 when the Rights Issue in March 2007 where the share was offered at Rs. 140.

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