Dubai Govt. buying throws open Galadari for attractive leisure play in post-war Sri Lanka

The buying of a 16% stake in Galadari Hotel (Lanka) Plc by the Dubai Government for Rs. 1.18 billion yesterday is expected to throw open the city five star as an attractive investment in the rebounding post-war leisure industry in Sri Lanka.

The stake amounting to 29.5 million shares was done at Rs. 40 each via seven crossings whilst overall Galadari saw a 18% stake or 32.74 million of its shares traded for Rs. 1.286 billion, bolstering turnover at the beleaguered Colombo Stock Exchange to Rs. 2.38 billion.

Dubai Government’s fully-owned and controlled Iceberg2 Ltd. acquired the stake, which was part of the holding of Galadari Brothers and connected parties. The sale was part of the settlement by Galadari brothers, who are subject to several cases by the Dubai Government. Galadari Brothers and connected parties including a Trust hold around a 29% stake in Galadari Hotel Lanka. Employees Provident Fund (EPF) is the single largest shareholder with a 13% stake whilst Pershing LLC S/A Averbach Grauson and Co owns a 8% stake. The public holding of Galadari Hotel Lanka is only 18%.

The deal had been structured by Investor Access Asia owned by Asanga Seneviratne, considered as a marque fund manager and investor via TKS Securities, in which he is a major shareholder.

Sources said that though executed yesterday the deal had been in the works for nearly two years.

Analysts said that interest shown by Dubai Government as well as freeing of this block held by Galadari Brothers, thereby improving its liquidity is likely to make Galadari Hotel an attractive investment play in the leisure industry, which has gathered momentum in post-war Sri Lanka.

“Dubai Government may either explore buying more stakes or divest for a strategic partner,” industry and company analysts speculated. “The Galadari brothers’ stake had been an issue previously for interested parties/serious players who were keen to enter Sri Lanka’s leisure sector. However, the equation now seems positive,” they added.

Market analysts also viewed the development positively, saying the sizeable 16% stake along with 13% of EPF and 8% of Averbach (bringing the collective holding of 37%) would make Galadari more attractive.

Galadari is also considered a prime property for new development or real estate development with room for expansion, especially if the spacious car park and the area facing Janadahipathi Mawatha are harnessed.

Benefiting from the winds of peace, in the first half of 2011, revenue at Galadari had increased to Rs. 621.4 million, up from Rs. 452 million in the corresponding period of last year. Gross profit had crossed the half a billion mark from Rs. 367.5 million. Galadari Hotel also achieved a Rs. 25.2 million profit in the first half as opposed to a loss of Rs. 56.4 million a year earlier.

However, Galadari continues to be burdened by Rs. 9 billion accumulated losses, a case equal to Colombo Hilton-owning firm Hotel Developers. Non-current liabilities of Galadari amount to Rs. 6 billion whilst current liabilities amounts to Rs. 651.5 million, including Rs. 327 million as interest bearing short-term loans and borrowings.

In a bid to better ride the post-war flood of tourists, Galadari Hotels in April struck a deal to convert Rs. 6.3 billion of debt in to equity.

The Company said that its Board at a meeting held on April 27 unanimously resolved to restructure the Balance Sheet in a manner which would enable Galadari Hotel to capture to its benefit the positive growth trends expected in the tourism industry and to operate competitively and profitably.

The Board has approved in principle that the restructuring should be by way of a conversion of debt to equity.

The debt so converted to equity will be Rs. 5.75 billion owed to Galadari Brothers Company LLC and Rs. 583.4 million owed to National Insurance Trust Fund (NITF).

The conversion will be effected by way of a private placement of shares and subject to regulatory and shareholder approval. The Company’s shares will be valued afresh prior to determine the conversion price and issuance of shares.

Subsequently the price at which the conversion to be carried out was disclosed at Rs. 15.26, which some found unacceptable.