Ceylon Hotels Corp. seeks shareholder nod to write off losses exceeding Rs.1bn

Ceylon Hotels Corporation PLC (CHC), an operator of rest houses and resorts is seeking the shareholder nod to write off its accumulated losses which are to the tune of over a billion rupees against the shareholders’ fund in a major capital restructure, the company said in a stock exchange filing. 

For this purpose, the company has called for an extraordinary general meeting (EGM) on September 26, 2016. 

The company intends to write off its accumulated loss of Rs.1.02 billion as of June 30, 2016 against its shareholder funds of Rs.1.22 billion.  

The proposed capital restructure will reduce its stated capital to Rs.198.5 million and carry forward losses of just Rs.105, 525. 

“This, you will appreciate, will better able the company to source funds to its future requirements,” the company told its shareholders.

During the six months ended June 30, 2016, CHC on a standalone basis made a loss of Rs.8.5 million while at the group level the loss was Rs.56.4 million. 

For the financial year ended March 31, 2016 the company made a profit of Rs.12.3 million recovering from a loss of Rs.74.6 million a year ago, while the group made a net profit of Rs.3.6 million against a profit of Rs.49.6 million a year ago. 

The company said it was unable to declare a dividend although it made a profit during the financial year as the Companies Act requires an entity to carry out a solvency test before any dividend distribution in the future. 

A company is deemed to have satisfied the solvency test if it is able to pay its debts as they fall due in the normal course of the business and the value of the assets is greater than the value of liabilities and stated capital. 

As of June 30, 2016 the company has an asset base of Rs.1.33 billion. The net asset value per share of the company stood at Rs.3.94. However the CHC group had a net asset per share of Rs.35.49 but the share was trading at Rs.23.20 a last week’s close. 

The massive pile of losses caused by the Rs.163 million paid for a voluntary retirement scheme during 2007/8, costs incurred amounting to Rs.518 million in the process of transitioning to international financial reporting standards during 2010/11 and Rs.209 million loss caused as a result of internal asset transfers from CHC PLC to United Hotels Company Private Limited, a group entity, the company said. The CHC group controlled by Gardiner family, the owners of The Galle Face Hotel, recently announced its US $ 27 million investment in a Maldivian resort which will be developed into 50 water bungalows, water sports centre and other resort facilities. 

CHC plans to open the resort by mid 2018. 

As of June 30, 2016, Ceylon Hotels Holdings held 54.56 percent stake in CHC while the state-controlled private sector pension fund, the Employees’ Provident Fund held 11.95 percent stake being the second largest shareholder.