Hotel Battle continues

Founding Chairman Furkhan to tolerate intruders ‘at a price’

By Indika Sakalasooriya
The battle for hotels continues as Confifi Chairman Tony Furkhan is believed to be selling his nearly 40 percent stake in the company ‘at a price’ that Ishara Nanayakka-Ajit Devasurendra led LOLC-Browns Joint Venture Company may not want to pay.
In the meantime, the presence of a ‘third party’ who has reportedly entered the scene backing Furkhan seems to have given the muscle to the founding chairman of the group to bargain terms with the LOLC who is believed to be rushed into the deal without bailing out the biggest shareholder of the company.

Last week, LOLC-Browns JV, LOLC Securities bought 43 percent of Confifi Hotels Holdings PLC (PALM) at Rs.210 for a total consideration of nearly Rs.660 million and in a separate deal it acquired 20 percent of Riverina Hotels PLC, an associate company of Confifi Holdings for approximately Rs.286 million.
Confifi Hotel Holdings owns 24.06 percent of Riverina Hotels and 21.8 percent of Eden Hotel Lanka, both listed firms. The assets of Riverina includes 24.4 percent of Eden Hotel Lanka PLC and 3.6 percent of PALM.
According to CT Capital chief executive, Channa Amaratunga, this ‘takeover attempt is more about location and potential, rather than current returns’.

Analysts point out that although Confifi hotels need substantial upgrading, all the three hotels have fairly large land extent in the Beruwela-Bentota coastline which is known as the ‘Golden mile’. PALM has nearly 8 acre land while Riverina is believed to have a land extent of approximately 10 acres. Eden Hotel also has a 5 acre land extent along the ‘Golden Mile’.

“Significant investment will be required in upgrading properties to command higher REVPARs (Revenue per Available Room) and to generate adequate ROEs (Return on Equity)” Amaratunga added.
In terms of number of rooms, Eden Hotel has 158 while Riverina has a room strength of 192. Club Palm Garden (PALM) which underwent a partly refurbishment last year has a room capacity of 136.
However, there are doubts as to whether the two parties will come to an agreement over the ownership of the Confifi Group amicably as it is believed that the management contracts of the Eden Hotel and Riverina is with the Confifi Management Services which owns a 30% company controlled by Tony Furkhan.

“As well as the asset ownership, LOLC needs to buy the managing company that manages the Confifi Group Hotels”, an analyst, on the ground of anonymity, told The Nation Economist.
In an earlier deal in which John Keells Holdings tried to acquire Confifi Hotels, JKH resorted to cancel the management agreements the three hotels had with Confifi Management Services.
Confifi shares were seen rising 46 percent ot Rs.318 on Wednesday as the buyers expected a battle for the control of the company.

According to a research report by Asia Securities issued this month, Confifi Hotel Holdings has book value per share of Rs.162.15. Even though hotels is capital intensive business for the December 2009 quarter, the company has spent only Rs.17 million as capital expenditure and according to analysts, the new buyer will have to engage in refurbishment work that will cost them substantial moneys.


ADB chief meets President

President of Asian Development Bank, Haruhiko Kuroda, who is currently on a visit to Sri Lanka called on President Mahinda Rajapaksa at Temple Trees, last week


Chevron bottom line boosted by volume growth

By Azhar Razak
Chevron Lubricants Lanka Plc (CLL), the marketer of Caltex, Havoline, Delo and Lanka branded lubricants in Sri Lanka has achieved a profit after tax of Rs.375 million for the quarter ended March 31, 2010, up by a staggering 61 percent compared YoY. According to the Managing Director/Chief Executive Officer of CLL, Kishu Gomes, the main reasons for the growth was due to increased volumes (helped by the local industry growth of close to 5% post war), growth in export volumes, lower raw material prices (compared to 1Q last year) and better operational expenses (OPEX) management exercised by the company.

“We had also experienced a significant volume growth in the North and East due to the end of the war and with all the developments that is taking place there, the region is well poised to grow and could become a major market in 2-3 years time,” Gomes told the Nation Economist in a telephone interview.

He said that in terms of volume, the company had witnessed a growth of at least 50 percent in the North and a growth of 20 percent in the East. In money terms, revenue however recorded a marginal growth of 1 percent from Rs.2.27 billion to Rs.2.29 billion although cost of sales reduced by a higher rate of 11 percent to Rs.1.5 billion resulting in a gross profit growth of a healthy 39 percent to Rs.755.3 million.
“We were also helped by an efficient OPEX management where we were able to trim costs down and both our Bangladeshi as well as Maldivian operations performed extremely well,” Gomes said.
Meanwhile, operating profit of CLL grew by 57 percent to Rs.564.8 million for the quarter while finance income rose by a substantial 144 percent to Rs.21.3 million.

CLL, which caters to both the retail and industrial segments in the Sri Lankan market, is represented in Maldives by Damas and in Bangladesh by the Navana Group. Over 90% of products marketed by CLL are produced locally at their blending plant in Kolonnawa, a facility which was awarded accreditation from the British Standards Institute. The finished goods are then either distributed locally through its extensive island-wide network, or shipped as exports to Maldives and Bangladesh.


ACAP’s finance company gets Rs.200m

By Azhar Razak
Asia Asset Finance Ltd, a subsidiary of the financial services group, Asia Capital PLC (ACAP) has received a cash infusion of Rs.200 million from its parent company during the year ended March 31, 2009, according to the group’s latest financials.

The investment was directed towards averting a cash crisis since the audit report on the Annual Report last year (year ended March 31, 2009) stated the company’s and group’s ability to continue as a ‘going concern’ was dependent on the success of its future endeavours and negotiation of finance facilities.
“ACAP has met its commitment for the year by investing Rs.200 million during the financial year in the shares of Asia Asset Finance Limited through rights with calls of Rs.50 million on October 31 and December 31, 2009 and Rs.100 Mn on March 31, 2010,” Asia Capital Plc Chairman, Mano Nanayakkara told The Bottom Line yesterday.

Meanwhile, according to recent annual un-audited (provisional) figures, ACAP has surprisingly posted a profit-after-tax of Rs.235.6 million for the year ended March 31, 2010, a 162% turnaround from a loss of Rs.379.2 million recorded during the corresponding period last year. The group’s bottom line has been helped by the sharp gross profit of Rs.727 million (compared to Rs.466mn last year) achieved through substantially scaling down the group’s cost of sales by 51% to a mere Rs.651 million. The income statement also shows that the group has made Rs.75.3 million profit over the disposal of subsidiary shares and Rs.121.9 million as share of profit derived from Associates.

While releasing the audited annual report of the company last year, the auditors of ACAP, KPMG Ford Rhodes drew attention to the matters in the financial statements where the company and the group had incurred a net loss of Rs.361 million and Rs.379 million respectively for the year ended March 31, 2009 and as of that date the company’s and group’s accumulated losses were Rs.1,015 million and Rs.1,081 million respectively. Further, the auditors noted that as at that date, the company’s current liabilities had exceeded its current assets by Rs.424 million and the current liabilities of the group exceeded its current assets by Rs.203 million.

“The company and group are said to be in the process of negotiating finance facilities. The company’s and group’s ability to continue as a growing concern depends on the success of its future endeavours and negotiation of finance facilities,” the auditors, who however did not ‘qualify’ the report, stated.

Adding further, the auditors warned that the going concern of the subsidiary companies Asia Asset Finance Limited, Asia Fort Sri Lanka Direct Investment Fund Limited, Asia Growth Fund (Pvt) Limited and Investor Access Asia (Pvt) Limited are in doubt but the financial statements of the subsidiaries were prepared on the assumption that they are going concern as the directors felt confident that the financial position of these companies could improve and the parent company has agreed to provide financial support.
It is noteworthy to mention that the audit reports for both financial years, ending March 31, 2008 and March 2009 had been similar drawing attention to the losses incurred.

Asia Capital is a diversified financial services group with operations encompassing investment banking, asset management, stock broking, fixed income securities trading, insurance underwriting, finance house operations (asset leasing, deposit mobilisation) and commodities broking. Asia Capital’s subsidiaries also include Asia Securities (Pvt) Ltd, Asia Fort Sri Lanka Direct Investment Fund Ltd, and Asia Apparel Trading (Pvt) Limited.


US cancels travel warning on Lanka

Citing improvement in the security situation in Sri Lanka after the defeat of Liberation Tigers of Tamil Eelam (LTTE) last year, the US has announced lifting of its travel advisory for the island nation.
Sri Lankan Ambassador to the US, Jaliya Wickramasuriya welcomed the decision.
“The Travel Warning issued for Sri Lanka on November 19, 2009 has been cancelled, effective May 26, 2010,” the State Department said in a statement.
“Department of State has cancelled the Travel Warning for Sri Lanka due to improvements in safety and security conditions throughout the country,” the brief statement said.
“As we have moved past the direct conflict, the longer that we come from the direct conflict, the more we start to hopefully see Sri Lankan society stabilise, heal, then a great deal of effort over a number of months to deal with the displaced population of Sri Lanka.”


Oil drilling to start in Q2, 2011

In its interim statements Cairn Indian Limited who has set up a subsidiary in Sri Lanka said that the drilling of the three oil wells in the Mannar Basin of Sri Lanka will commence in second quarter of 2011 financial year.
“The 3D seismic data is currently being processed. A detailed Metocean study has recently commenced in preparation for the Exploration drilling of three wells planned to commence in Q2 CY 2011”
Cairn India’s Operating revenues for the fourth quarter rose by 45% at INR 16,230 million (USD 342 million) (corresponding to the previous year: INR 11,168 million (USD 243 million) due to Rajasthan volumes making the company to record a Profit after tax higher by 53% at INR 10,511 million (USD 222 million) (corresponding previous year: INR 6,870 million (USD 150 million), according to interim statement issued by the company.

Cairn Lanka Private Limited, the wholly owned subsidiary of Cairn India, acquired a 1750 km2 3D seismic survey data in the Mannar Basin in Sri Lanka between December 2009 and January 2010, The Mannar basin is an under-explored frontier petroleum province, virtually un-explored in Sri Lanka with both structural and stratigraphic plays. The programme fulfils the commitment of 1,450 km2 of 3D seismic data acquisition.


ADB prices $3 billion three-year global bond issue

MANILA - The Asian Development Bank (ADB) returned to the US dollar bond market last week with the pricing of a $3 billion three-year global benchmark bond issue, proceeds of which will be part of the bank’s ordinary capital resources and used in its non-concessional operations.

The bonds, with a coupon rate of 1.625% per annum payable semiannually and a maturity date of 15 July 2013, were priced at 99.626% to yield 46 basis points over the 1.375% US Treasury notes due May 2013.
The transaction was lead-managed by Daiwa Capital Markets, Goldman Sachs International, Morgan Stanley and UBS Investment Bank. A syndicate group was also formed consisting of Bank of America Merrill Lynch, BNP Paribas, Credit Suisse, HSBC, JP Morgan, Nomura, RBC Capital Markets, and TD Securities.

The deal marks ADB’s second issue in the US dollar global bond market in 2010, having issued bonds with a five-year maturity in February this year.
“We are very pleased with the transaction. The robust sponsorship from investors globally resulted in an oversubscribed book of around $3.3 billion,” said ADB Treasurer Mikio Kashiwagi.

As with previous ADB benchmark transactions, the issue achieved broad primary market distribution with 46% of the bonds placed in the Americas, 32% in Asia and 22% with investors in Europe, Middle East and Africa. By investor type, 63% of the bonds went to central bank and government institutions, 17% to banks, 14% to fund managers and 6% to other types of investors.
ADB plans to raise around $15 billion from the international capital markets in 2010.