focuses on real estate
Looking at strategic alliance
with CentrePoint of Singapore
The John Keells acquisition of Asian Hotels Corporation marks a
strategic shift in focus towards property development giving the
conglomerate prime property assets and better synergies between
its tour operating arm, resorts and newly acquired city hotels,
stock market analysts said.
JKH has already
had talks with CentrePoint, a leading property developer in Singapore
with interests in malls and serviced residencies, possibly with
a view to some form of facilities management or even equity investment
in Crescat, and has set up a division within the group to make better
use of its underutilized real estate assets.
this acquisition as a strategic move by JKH into the property development
and real estate market," said Channa Amaratunga of brokers
Asia Securities research. Further acquisitions by what he called
the "acquisitive conglomerate" could not be ruled out.
to believe that it is on the look out for further acquisitions,
especially in the financial services sector where it still does
not have the critical mass to become a dominant player," he
said. "While JKH is hence likely to be a frontrunner in the
potential privatization of People's Bank, we believe it is also
evaluating other opportunities in commercial banking and insurance."
of Asian Hotels adds a 12-acre block of prime property with access
to both Galle Road and Beira Lake to the conglomerate's already
considerable real estate portfolio. JKH recently freed 7.5 acres
of prime property in Colombo 2, following the voluntary retirement
scheme at its Ceylon Cold Stores subsidiary.
itself referred to the potential of property development in its
announcement about the Asian Hotels acquisition saying it offered
"attractive real estate opportunities".
the controlling stake, JKH has been mopping up smaller quantities
of Asian Hotels shares in the market paying a maximum of Rs. 29,
allowing it to increase its stake at a price cheaper than the expected
mandatory offer. JKH paid a premium and spent over Rs. 4 billion
to buy a 60.5 percent stake in Asian Hotels, which owns the Colombo
Plaza hotel and the Crescat City Complex and is a big shareholder
in Trans Asia Hotels.
the stakes held by Malaysian Tan Sri Wan Azmi Hamza, the biggest
shareholder, David Crichton Watt and others who bought into hotels
stocks when foreign investors discovered Colombo's 'emerging market'
in the early 1990s.
The total cost of the acquisition could go up with the pending mandatory
offer to other shareholders at Rs. 30 a share.
had been in the "advanced stages" of talks with hotel
chains like Marriott and Sheraton to manage the Colombo Plaza, formerly
run by the Oberoi chain.
vice president of DFCC, said the property development potential
is likely to generate returns only in the long term, with the immediate
gains coming from the hotels, given the current revival in the industry
and expectations of a record number of tourist arrivals this year.
Manager Research of HNB Stockbrokers, described the asset value
in the acquisition as "quite significant" and noted that
JKH has over 20 acres of land in Colombo and the suburbs, with some
of it still idling.
strategically re-positioned itself with more focus on maximizing
efficiencies. Following a study conducted by the Boston Consultancy
Group (BCG), the diversified group is now implementing a new operating
model to improve asset utilization and evaluate its business portfolio."
Premaratne said he expects the company's return on assets to improve
to 15.9 percent from 10.4 percent over the next three years.
JKH last week
announced a one-for-seven rights issue and a private placement of
24 million shares, subject to shareholder approval, to fund its
acquisition of Asian Hotels Corp and new investments. The rights
issue is likely to be in mid-October. Godamune said the rights issue
and private placement would raise enough funds to cover the entire
cost of the acquisition, minimising the need for borrowing.
Premaratne of HNB Stockbrokers said JKH does not want to have too
much debt so as not to affect future expansions and acquisitions.
Super at Mount to close
JKH is closing down its Mount Lavinia Keells Food supermarket, part
of the loss-incurring Keells Food unit, after a massive hike in
the rental by the owners of the building, S. Thomas' College.
closing the outlet by the end of November mainly because the lease
agreement, signed 10 years ago, expires by the end of November,"
a company official said. "They wanted a huge increase in the
rent to renew the lease."
were asked to leave and offered six months' compensation have appealed
to the Labour Commissioner. The rival supermarket chain Cargills
is believed to be taking over the building for its own supermarket
as well as for a KFC fast food outlet.