John Keells Hotels raising Rs. 3.64 bn. for expansion & refurbishment

John Keells Hotels PLC (KHL), anticipating growth in tourist arrivals to Sri Lanka, is raising funds through a rights issue to expand and improve its portfolio of hotel rooms and related services to meet the expected increase in demand of three to five star rooms in the country, shareholders have been told.

KHL has announced a rights issue of slightly over 364 million new ordinary shares priced at Rs.10 per share to raise Rs.3.64 billion through this issue to fund the refurbishing of some of the existing hotels in its portfolio as well as for new hotel construction, a circular issued to shareholders in connection with the rights issue said.

The company owns a chain of resort hotels in Sri Lanka and the Maldives which are looking up with a profitable December quarter last year and nine-month losses for 2009 halved.

Club Oceanic in Trincomalee has already been closed for refurbishment and expansion while in November last year the company acquired four acres of land next to the former Hotel Bayroo forming a contiguous block of ten acres in prime Beruwela beach front where it plans to construct a new 190-room hotel.

"In addition to these two projects, KHL is also evaluating other new hotel projects as well as the refurbishment of some of the existing hotels in its portfolio," the circular said.

The funds raised through the rights issue to which the major subscriber will be John Keels Holdings owning over 90% of KHL. This is to be utilized over a three-year period in approximately the following proportions - 20% for refurbishing existing hotels, 65% for new hotel projects and 15% for the acquisition of land.

The KHL directors, taking account of current trading prices of the company’s share on the CSE and the potential of the business in the new environment, have decided that the Rs.10 price at which the shares are being offered "is fair and reasonable to the company and all its existing shareholders."

The KHL share traded at a high of Rs.19.75 and Rs.17.25 in November, between Rs.18.25 and Rs.22.75 in December and between Rs.24.25 and Rs.33 in January.

Shareholders have been offered the opportunity of applying for additional shares which may become available in the event of allotments not being taken.

The issue is not being underwritten.

In the December quarter, KHL posted a profit of Rs.83.8 million against Rs.12.5 million a year earlier but was carrying a loss of Rs.275.3 million for the nine months ended December 31, 2009 although it was half the loss of Rs.574.9 million incurred in the comparative period the previous year.

KHL has a stated capital of Rs.5.85 billion, capital reserves of Rs.724.1 million and revenue reserves of Rs.423.4 million.

Liabilities include Rs.3.2 billion interest bearing borrowings while net assets per share had grown to Rs.6.42 on December 31, 2009 from Rs.6.14 a year earlier.

Segmentlly both the Sri Lankan and Maldivian hotels had continued to lose during the nine months under review with losses of Rs.161 million in the Maldives running ahead of a loss of Rs.114.4 million in Sri Lanka.

JKH owns 92.69% of KHL with all other shareholders individually holding less than one percent.

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