“Short-term pain, long-term gain” scenario for JKH: Report

John Keells Holdings PLC’s (JKH) proposed US $ 850 million integrated resort project in Glennie Street would be a significant hit to the company’s bottom line in the short-term, though the project is expected to be a long-term boon, an equities report stated. “Additional borrowing will be required for the project resulting in a significant jump in the borrowing costs,” Softlogic Stockbrokers said referring to the JKH indication to the Board of Investment (BoI) that the firm would increase its investment by another US $ 200 million.

“We assume the project is likely to be initiated early FY15E affecting FY15E and FY16E profitability of the company,” the report noted.

The report however expects FY17E earnings to benefit through this project as the sale of the residential apartments generate strong cash flows.

Despite the above project being a landmark for the JKH Group, the funding side of the project still remains unclear.

Further the report stated that the group currently holds cash reserves of Rs.30 billion. Through the existing cash reserves the company currently generates net finance income of Rs.3.7 billion contributing 27 percent to the bottom line.

According to BoI Chairman, Dr. Lakshman Jayaweera, JKH’s subsidiary Waterfront Properties (Pvt) Ltd. would raise between US $ 300-350 million from foreign sources through a rights issue, before the end of this year.

However JKH in a stock market disclosure on Monday (15) refuted claims by Dr. Jayaweera and said the company had not made any decision to raise US $ 300 million through such a rights issue.

Speculation is now rife that JKH might opt for a private placement of shares to raise required funds.The integrated resort will consist of 500 hotel rooms, apartment complex, restaurants, commercial and office space. The project is expected to generate as much as 3,000 direct employment opportunities.