Sri Lanka’s premier blue chip, John Keells Holdings PLC (JKH), last week said, raising of funds for its ‘Cinnamon Life’ project, the single largest private investment so far in the country, had been completed.
Cinnamon Life, which was earlier known as Waterfront Project, is estimated to require an investment up to US $ 770 million and based on the funding profile, the project is funded equally through debt and equity.
JKH in a stock exchange filing said it had concluded the conversion of its 2016 warrants, the second and the last in the line of capital calls through warrants to fund the project, which is now being built in the heart of Colombo.
However, unlike the 2015 warrants, which saw near full subscription levels, the shareholders have exercised and accepted only a fraction of the 2016 warrants on offer.
That is, out of the 57.46 million warrants, only 21.28 million warrants have been exercised and accepted for a total of Rs.3.18 billion.
This has led to a shortfall of funds to the tune of Rs.5.38 billion from 2016 warrants because if total warrants were fully subscribed, the company should have received Rs.8.58 billion at an exercise price of Rs.149.29.
This raises questions whether JKH has lowered the scale of the project, which demands a lower investment than originally planned, or the company has secured additional debt funding.
Or may be JKH is operating with adequate internally generated cash reserves to fund the shortfall in the equity portion of the funding mix.
“The equity and debt financing requirement for the Cinnamon Life project remains secured with the conclusion of the required debt financing for the project in December 2014 and availability of cash reserves to meet equity commitments through the capital raised via the 2013 rights issue, 2015 Warrants and internally generated cash,” JKH said in the filing.
When the project was initially announced in July 2013, JKH raised Rs.23.1 billion through a rights issue in September 2013 in the proportion of one new share for every thirteen held. The rights were attached with warrants.
That is, any subscriber to the rights will automatically be entitled to subscribe for two warrants in 2015 and 2016. Each warrant equals to a share.
In 2015, out of the 50.28 million warrants in issue, a total of 49.25 million warrants were exercised and accepted for a total of Rs.7.97 billion.
Meanwhile, in June 2015, JKH secured US $ 395 million syndicated project development facility from Standard Chartered Bank effectively concluding the debt financing of the project.
Hence, no evidence points to JKH securing additional debt funding to finance the project.
The company however may have changed the designing and the positioning of the project slightly after the government restricted the ability to rent space for gaming activities as earlier planned.
Early this year, JKH announced the project would be delayed until 2019 from the earlier planned 2017.
The 4.5 million square feet flagship project will house a 800-room, 6-star hotel, retail, residential and office spaces and a conference centre, largely targeting the Meetings, Incentives, Conventions and Exhibitions (MICE) tourism.