On August 28, the JKH board decided, subject to shareholder approval, to issue nearly 132 million new ordinary shares of the company by way of a rights issue of two ordinary shares for every thirteen held at a price of Rs.175 per share.
The new shares that are subscribed will be entitled to two sets of warrants, one exercisable in 2015 and the other in 2016, with every three rights shares subscribed entitled to one warrant exercisable in 2015 to purchase a JKH share at Rs.185 and the 2016 warrant carrying an exercise price of Rs.195 per share.
The rights issue is not underwritten and JKH shareholders have been told that in the event of an under-subscription the company will fund its investment through increased debt and alternative funding sources which in the medium term will include internally generated funds.
The cash infusion through the rights issue and the warrants will be utilized for the mega luxury multi/mixed integrated resort in Colombo city estimated to cost approximately USD 820 million and to be undertaken in two phases.
JKH has advised its shareholders that the implementation of Phase 2 will be subject to market conditions, estimated the construction period at between four to five years and envisaged minimum investment in Phase 1 to be USD 650 million.
"The project will be financed through a combination of equity for land transferred from subsidiaries of the company, equity infusions into the project company, pre-sales of residential apartments during the construction phase, and debt at the project company," a circular to shareholders issued last week said.
"The project, being approved under the Strategic Development Projects Act, is an integrated resort consisting of multiple businesses including a luxury hotel, convention centre, entertainment and gaming facilities, international standard shopping mall, luxury condominiums, serviced apartments and office space similar to the integrated resort developments seen in the South East Asian region.
"It is a tourism related project targeted towards the creation of a large and unique development, which will aesthetically and functionally add to transforming the landscape of Colombo, potentially making it one of the most sought after destinations in South Asia and will further complement the businesses of the main industry groups of the John Keells Group," the circular said.
It explained that given the 4-5 year construction period, the equity infusion by the company into the project company will be on a staggered basis with the issue of warrants enabling the raising of the necessary funds when required.
The JKH directors have said that considering the purchase price of the two warrants, ``compared to the prevailing market price of JKH shares, the warrants will have an intrinsic value to the shareholders.’’
The CSE has approved in principle the listing of the new shares arising from the rights as well as the shares arising from the exercise of the warrants in 2015 and 2016.