John Keells floats debenture to pay off debts

September 11, 2006 (LBO) – Sri Lanka’s John Keells Holdings secured an AAA (lka) rating for the upcoming 2.0 billion rupee debenture, but Fitch Rating Lanka says the group depends too much on the transportation unit to generate cash revenues. The bluechip conglomerate is raising money to pay off short term debts built up during its recent acquisition spree. As at end 1Q07, JKH short term debt stood at 7.4 billion rupees, which accounts for 78 percent of their total debt stock.

Details of the issue are still being firmed up, but the debenture is expected to carry a four-year tenure, priced at a floating rate of interest and privately placed among market players.

JKH had cash reserves of 5.5 billion rupees and committed-unutilised credit facilities of 11.0 billion rupees as end 1Q07. The group also has good access to the capital markets, the risk evaluator said Monday while assigning a stable outlook to the issue.

Salient Features of
the Debentures



TYPE

Tenure (yrs)

Interest Rate (p.a.)

Cap *

Floor *

Coupon Payment

Capital Repayment

One
4
13.50 % p.a. –
Fixed Rate
N/A

N/A


Semi-Annually

Bullet Repayment at Maturity

Two
4

1 –
2 yrs – 13.30 % p.a. – Fixed Rate

3 – 4 yrs – 6 months Gross TB + 0.85 % p.a. –
Floating Rate

N/A


15.50%

N/A


10.25 %


Semi-Annually
 

Bullet Repayment at Maturity


Three
4


6 months Gross TB + 0.85 % p.a.
– Floating Rate


15.50%


10.25 %


Semi-Annually
 

Bullet Repayment at Maturity


(Source: John Keells Holdings)

John Keells Holdings has investments in port terminal operations, sale of marine fuels, shipping, cargo and logistics, tourism, property development, manufacturing and distribution of food and beverage products, supermarkets, financial services and information technology.

Fitch’s key rating concerns are JKH’s heavy reliance on few business units – marine fuel sales, port terminal handling operations, property development and city hotels – for its cash earnings.

“The security threat to the Colombo Port has the potential to seriously damage the operating results of the division and dent the overall financial profile of JKH.”

However, Fitch notes that in the past, general security threats to economic targets have had limited impact on the port related businesses of JKH, which is partly owing to some alleviating measure taken by the Sri Lankan government.

“The operating results of JKH’s hotels and resorts in Sri Lanka are still depressed owing to the increase in hostilities between the Tamil Tiger rebels and the Government of Sri Lanka,” the agency said.

To offset exposure to Sri Lanka, JKH’s picked up two Maldivian resorts for 34 million dollars recently, while another is under construction. These resorts should help JKHs leisure division to report improved earnings and operating fund flows from FY08, the agency said.

JKH is expected to invest 2.4 billion rupees this financial year in their leisure division, of which a majority is earmarked for Maldivian resort that’s being built.

The agency also expects JKH to generate strong fund flows from its on-going property development projects through FY09.

The group is also spending money to build a new bottling plant and a business process outsourcing facility in India. The agency notes that the investments required in the property development business division is high, but will be adequately supported by the installments due from buyers of the apartments.