Financial Times

Merger could impact JKH shipping business
The planned take over of P&O by the world's biggest shipping company, A.P. Moller - Maersk (Maersk) of Denmark, could affect the transportation business of John Keells Holdings which has been making good profits from its stake in the South Asia Gateway Terminals (SAGT) of Colombo Port.

The transportation sector is the largest contributor to JKH group profitability. Maersk has agreed to pay US$3 billion in cash to take over its Anglo-Dutch rival P&O Nedlloyd (PONL).

The PONL Board supports the offer and the UK's P&O, which owns 25 percent of PONL, has indicated that it would accept the offer. The PONL/Maersk combination will control 17 percent of the global shipping market, more than double its closest rival in a relatively fragmented industry, brokers Asia Securities said.

"Maersk's takeover of PONL raises a few interesting questions regarding JKH," Asia Securities said in a research report. While it is still too early to form solid opinions, the brokers said there were several potential issues that could affect JKH.

One issue is whether Maersk vessels will berth at SAGT in the future, in view of PONL's 10 percent stake in the SAGT. Maersk vessels do not berth at SAGT now, instead opting to use its state-owned rival facility, Jaya Container Terminals.

In Sri Lanka, PONL and P&O Ports (part of the P&O Group, which owns 25% of PONL) own 10 percent and 16.25 percent of South Asia Gateway Terminals. SAGT is managed by P&O Ports, with JKH having a 26.25 percent stake in the terminal.

PONL also has a 40 percent stake in P&O Nedlloyd Keells (Pvt) Ltd, which represents the PONL shipping agency in Sri Lanka, with the balance 60 percent being held by JKH.

Maersk have a shipping and logistics presence in Sri Lanka known as Maersk Lanka (Pvt) Ltd in partnership with Ceylon Trading Company, which itself is fully owned by Aarhus Oliefabrik A/S of Denmark.

Asia Securities said another issue posed by the takeover is whether the PONL agency in Sri Lanka would go to Ceylon Trading, or whether the Maersk agency would go to JKH or whether the status quo would be maintained. The brokers also raised the possibility of royalties and fees charged from P&O Nedlloyd Keells (Pvt) Ltd being revised.

"While foreign firms cannot own more than 40 percent of shipping agencies in Sri Lanka, in view of likely long term liberalisation, will Maersk/PONL continue their 40:60 ventures with JKH/Ceylon Trading or demand for a higher stake or even go it alone?" the brokers asked.

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