A ban on casinos by Sri Lanka’s new government isn’t stopping the nation’s biggest conglomerate from pressing ahead with a $850 million development project as the island rebuilds from a 30-year civil war.
Lenders are fully committed to John Keells Holdings Plc.’s Waterfront Properties mixed development project in Colombo though the absence of a casino may take some sheen off it and dent revenue, Chairman Susantha Ratnayake said in an interview.
The Colombo-based group, which is into banking to real estate and port terminals, is expanding its leisure business to tap rising demand as the $67 billion economy rebounds after the war ended in 2009. The project, which envisages malls, commercial and residential space and convention halls, will drive the next phase of growth for John Keells, according to a research note by LOLC Securities Ltd.
Though “rental premiums will be affected to some extent” because of the casino ban, “this is still a unique proposition which will drive footfall and higher spending,” Ratnayake said from his office in the nation’s capital city.
President Maithripala Sirisena, who succeeded Mahinda Rajapaksa in January, reversed the previous administration’s decision to allow casinos in such projects.
That prompted Crown Resorts Ltd., the Australian company controlled by billionaire James Packer, to pull out of a $400 million five-star resort project in the center of Colombo earlier this year.
Drop in Shares
John Keells’ shares are down 23 percent this year, making the stock the second-worst performer on the Bloomberg Asia Pacific Commercial Services Index. The median estimate of analysts surveyed by Bloomberg indicates profit will fall 6 percent this fiscal year.
Rating the stock a buy, LOLC Securities said in its May 30 report that John Keells can “conveniently leverage up to take up the investment opportunities without significant burden on the balance sheet,” and estimated the project will account for 26 percent of the group’s valuation.
Lenders to the project aren’t likely to change the cost of finance even as marginal adjustments will be made to the loan size and the debt-equity ratio, considering gaming is off the table, Ratnayake said.
John Keells reported a 22 percent rise in net income to 14.35 billion rupees ($107 million) in the year to March 2015 as revenue rose 6 percent 91.58 billion rupees.
Ratnayake said John Keells’ consumer foods and retail and financial services divisions are the “drivers of growth”, while tourism will be a “major part of our business.”
After winning a war against separatist Tamil rebels in 2009, Sri Lanka’s governments under Rajapaksa and Sirisena have sought to spur an economic revival. Tourist arrivals have surged threefold and tourism receipts reached a record in 2014, while the economy expanded an average 7.4 percent starting 2010, rebounding from 3.5 percent in 2009, the slowest pace since 1989, Bloomberg reports.