Financial Times

SEC probes Lihiniya Surf trades

By Duruthu Edirimuni
The battle for control of Lihiniya Surf Hotel, one of the prime beach properties in Bentota, in which there was a crossing of a large block of shares at what appeared to be an artificially low price, is being investigated by stock market watchdog, the Securities and Exchange Commission (SEC).

The Sunday Times FT learns that the SEC is enquiring into the controversial transaction of Perigreen Group, a Special Purpose Vehicle (SPV) floated by the state-owned and listed Ceylon Hotels Corporation (CHC) and the Gardiner/Galle Face Hotel Group to secure 50.62 percent controlling stake in Lihiniya Surf Hotel owning company Associated Hotels Co Ltd. (AHCL).

CHC owns over 35 percent of AHCL while the Gardiner/Galle Face Group owns nearly 15 percent. Perigreen secured its shares at Rs.28, whereas AHCL was trading at a market price of around Rs. 40 at the time.

Another leisure sector firm, Hemas Holdings Ltd. and its subsidiaries later bought 2.6 million shares at Rs 40 per share in the Lihiniya Surf owning company AHCL for a total of Rs 104 million. The 47 percent stake was purchased from the Mercantile Investments Group.

Lihiniya Surf's developer and longstanding shareholder Mercantile Investment Group, controlled by veteran hotelier George Ondaatjie, who is also the Chairman of AHCL, owned around 48 percent of AHCL.

Ondaatjie told The Sunday Times FT that the Mercantile Investment Group wanted to peacefully hand over Lihiniya Surf and that he had sold shares to the Hemas Group as he did not want to work with the Gardiner "set-up". He didn't comment on allegations of irregularities (made against him) saying he was not directly managing the hotel.

He said that he was not informed about the acquisition despite him having supported the company in times of crisis with temporary loans and furniture. AHCL owes him Rs.20 million in this regard and he had voiced his concern at the last meeting held between all three parties.

He said that since Sanjeev Gardiner asked for sufficient time to settle this amount he is willing to do so and will decide upon a time period at the next meeting.

Gardiner confirmed this and said that Lihiniya has cash flow issues. The new set-up would help to bring about new thinking and work towards an overall development strategy of the hotel.

Current liabilities of AHCL amount to Rs. 36 million while long-term liabilities are Rs. 16 million among which the Mercantile Group is also a lender.

AHCL is weighed down with Rs. 31 million retained losses as at March 31, 2003 up from Rs. 22.8 million the year before.

Gardiner said that despite the boom in tourism last year Lihiniya Surf had not exploited its position to its advantage.

Hemas expands hotel chain

Hemas Holdings Ltd is expanding its hotel chain and has big plans to build up-market, life-style hotels on the southern coast and the central hills, Head of Hemas Leisure Sector, Abbas Esufally, said.Hemas feels that the quicker route to expanding their chain is through acquisitions, Esufally told The Sunday Times FT.

It has drawn up conceptual plans to develop boutique and villa type hotels in Goyambokka, Tangalle and on a property seven miles off Kandy which will take about three years to become operational.

Esufally said that Hemas values the 68-room Lihiniya Surf, which has one of the best beach frontages in the Bentota area, much higher than what they paid for it. "We have been looking at Lihiniya Surf for sometime and it was the last hotel available for acquisition in the Bentota strip." Hemas now owns Club Hotel Dolphin, Waikkal, Hotel Serendib, Bentota and Hotel Sigiriya. Esufally said that Hemas is looking forward to working with Perigreen and that both parties' objectives for the Lihiniya Surf Hotel are extremely common.

"We plan to up the quality and standard of the hotel by adding facilities through synergies, re-positioning, upgrading and effective marketing," he said. The hotel will be ready by November this year. Esufally said that Hemas, together with Lihiniya Surf's controlling shareholder Perigreen, expect returns of well over 20 percent.

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