Shareholder questions
JKH’s increased stake in SAGT
The return on equity of JKH during the year
ending March 31, 2005 was only 12.6%. As shareholders, are we not
been led up the garden path through top line figures freely advertised
by JKH and readily highlighted by the media?” he asked.
“Before committing an investment of Rs. 3.6.billion for a
stake of 7.5% at SAGT, yielding a return on investment of 8.57%
should not have the Directors of JKH sought approval from its leading
shareholders? Should not the Securities Exchange bring in adequate
regulations to protect the interest of shareholders?” the
shareholder asked.
A shareholder of John Keells Holdings Ltd (JKH),
last week raised the question as to whether the group’s recent
increased stake in the SAGT (South Asian Gateway Terminals) with
an additional 7.5 % at a cost of Rs 3.6 billion would bring in sufficient
returns.
Saying that on this investment JKH would receive
a return on investment of only 8.57%. “Can paid Directors
of JKH who are interested only in building empires be allowed to
commit funds on projects that would yield a return of only 8.57%,”
he asked.
The shareholder who requested anonymity, in a
letter to The Sunday Times FT, was responding to a newspaper report
from a JKH media release about JKH buying CDC’s (Commonwealth
Development Corporation’s) 7.5% of the SAGT. The acquisition
which raised the JKH stake in SAGT to 33.75% was part funded by
internally generated cash and part by debt. JKH recently placed
debentures to the value of Rs. 2 billion which some analysts believe
would have part funded the new acquisition.
Asked for a response, JKH in a statement said
that investment decisions are not based on short term profitability
alone but on long term expectations and potential. “As a company
which has delivered superior returns to our stakeholders through
aggressive investment decisions, our track record speaks for itself,"
it added. The unnamed shareholder said while inflation is hovering
around 17% and with most banking institutions offering interest
rates of around 16-17%, concealing the return on investment of 8.57%
in the JKH press release is not only an act of deception but is
an ‘Enron’ type corporate crime. “Since the corporate
sector of Sri Lanka is in the habit of dishing out top line figures
for public consumption, should we not start looking at return on
equity, particularly, when we have very high inflation/interest
rates.
The return on equity of JKH during the year ending
March 31, 2005 was only 12.6%. As shareholders, are we not been
led up the garden path through top line figures freely advertised
by JKH and readily highlighted by the media?” he asked.
“Before committing an investment of Rs.
3.6.billion for a stake of 7.5% at SAGT, yielding a return on investment
of 8.57% should not have the Directors of JKH sought approval from
its leading shareholders? Should not the Securities Exchange bring
in adequate regulations to protect the interest of shareholders?”
the shareholder asked.
JKH, in its response, also drew attention to an
October 25 report by C.T. Smith Stockbrokers Ltd analysing JKH’s
increased stake in SAGT.
It said that despite the ROI (Return on Investment)
likely to be below prevailing risk free Treasury yields, and earnings
negative once funding costs are considered, “we believe that
the price paid is a reflection of the longer term growth potential
of SAGT, especially in the light of the company possibly being given
the opportunity to develop a number of berths in the proposed new
Colombo South Harbour.”
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