JKH strikes $ 80 m equity deal with Asian Development Bank

• Announces two-phase private placement offering maximum of 8.5% stake
• First time a multilateral funding agency becoming shareholder in JKH
• Says ADB move a vote of confidence for JKH and Sri Lanka
• Proceeds to be used for the purpose of corporate level balance sheet support towards funding investments in ‘Keells’ Supermarket business
• Move affords JKH flexibility and agility to fund investments in an optimal manner
• Provides additional support to Group’s liquidity position and further leeway to manage foreign currency commitments on landmark projects such as the ‘Cinnamon Life’ integrated resort and Colombo Port’s West Container Terminal
• JKH to leverage ADB’s technical expertise and advisory to further strengthen Group’s environmental, social and governance

Top diversified blue chip John Keells Holdings PLC (JKH) yesterday announced a ground-breaking deal, which will see the Asian Development Bank (ADB) taking up a 8.5% stake via a private placement with an investment of $ 80 million via two phases.

It is the first time a multilateral donor agency will become a shareholder of the 1979-founded JKH with roots to the 1870s. Established in 1966, ADB is owned by 68 members, of whom, 49 is from the Asia Pacific region. Sri Lanka is also the current chair of the ADB and is slated to hold its Annual Meeting in May next year.  It is also Sri Lanka's largest provider of multilateral development assistance.

JKH said its Board of Directors resolved to raise funds through a private placement for a maximum cumulative amount of the Sri Lankan Rupee (LKR) equivalent of $ 80 million to Asian Development Bank through the issuance of up to a maximum of 122,500,000 new ordinary shares of the Company in two phases, collectively the ‘Proposed Private Placement’, which will be a maximum post-issue dilution of 8.5%.

The Proposed Private Placement would be for an upfront issue of ordinary shares (Initial Placement Shares) for an initial issue size of LKR equivalent of $ 50 million (Phase 1). At the time of issue of the Initial Placement Shares, the company will also issue to ADB non-tradable/non-transferable options (Options), which will entitle ADB, at its option and discretion, to subscribe for additional new ordinary shares of the company (Option Shares) within a period of 12 months from the date of subscription for the Initial Placement Shares, for an investment amount of up to the LKR equivalent of $ 30 million (Phase 2).

JKH said the issue of shares by way of the Proposed Private Placement is subject to the Securities Exchange Commission (SEC) and the Colombo Stock Exchange (CSE) approving in principle the issue and listing of such shares, the company obtaining shareholder approval at an Extraordinary General Meeting, approval of ADB’s Board of Directors and conformance with regulatory requirements, as applicable to the parties.

The $ 50 million initial issue has been priced at Rs. 154.50 per share (the closing market price as of 19 November 2021). The Issue Price is approximately a 10% premium compared to the 90-day volume weighted average price of Rs. 141 per share.

The number of shares to be issued would depend on the exchange rate as at the date of subscription. For example, if the exchange rate of Rs. 202.192/USD as of the date of this announcement remains at the time of subscription, this will amount to 65,434,304 Initial Placement Shares resulting in a post-issue dilution of 4.7% in Phase 1.

The maximum number of Options to be issued will be in the ratio of three Options for every five Initial Placement Shares, subject to being within the threshold of the Total Placement Shares.

JKH said, for example, if the Initial Placement Shares is 65,434,304, ADB will be entitled to 39,260,583 Options, which, if exercised in full, will result in a further post-issue dilution of 2.8%, taking the total post-issue dilution to 7.3%.

Phase 2 (in the event Options are exercised) will be:

• Issue Size LKR equivalent of up to $ 30 million (subject to the maximum number of shares to be issued to ADB);

• Option Exercise Price Volume weighted average price of the Company’s ordinary shares as quoted on the CSE during the 90 calendar days ending immediately prior to the option exercise date. The Option Exercise Price is subject to a minimum of Rs. 165 per share and maximum of Rs. 200 per share.

 

The Options will be exercisable during a three-month window post-completion of nine months from the date of subscription of the Initial Placement Shares. This entitlement will expire 12 months from the date of subscription of the Initial Placement Shares.

Each Option will be convertible to one Option Share during the Exercise Period, subject to the Total Placement Shares being within the threshold, as stated below, which will not exceed a post-issue dilution cap of 8.5%. The number of Option Shares will also be capped at a total ADB investment not exceeding $ 30 million which would be converted to LKR at the prevailing exchange rate at the time the Options are exercised.

JKH said the proceeds from this transaction will be utilised for the purpose of corporate level balance sheet support towards funding its investments in the ‘Keells’ Supermarket business, which includes the long-term outlet expansion plan, including construction and equipment, start-up expenses and the construction and equipping of the supporting logistics infrastructure to facilitate this.

Further, it will afford the JKH Group the flexibility and agility to fund its investments in an optimal manner, whilst providing additional support to the Group’s liquidity position, particularly in terms of providing further leeway to manage the foreign currency commitments of the Group’s landmark projects such as the ‘Cinnamon Life’ integrated resort and the West Container Terminal in the Port of Colombo.

In addition, given ADB’s investment mandate pursuant to which private sector projects must have clear development impacts and positive externalities, particularly in environmental, social and governance (ESG) aspects, JKH will leverage on ADB’s technical expertise and advisory to enhance and further strengthen the Group’s existing ESG processes and frameworks to reach best in class benchmarks.

“The Group believes that partnering with an internationally reputed financial institution, such as the ADB, particularly at this juncture of time, is a vote of confidence for JKH and the country,” the diversified blue chip added.

The last time JKH had a private placement was way back in 2003 amounting to $ 30 million when it acquired Asian Hotels and Properties (which owns Cinnamon Grand among others). It last went to shareholders to raise cash in 2013 via a Rights/Warrant issue.

The ADB has been a major development partner to Sri Lanka since 1966 and is today the country’s largest source of multilateral development assistance.

To date, the ADB has committed loans, grants, and technical assistance totalling $ 11.1 billion for Sri Lanka. Cumulative loan and grant disbursements to Sri Lanka amount to $ 7.96 billion. In 2020, the ADB disbursed $ 745 million to Sri Lanka, the highest ever annual total for disbursements.