Kandy Hotels to become sole shareholder of United Hotels via Rs. 3.8 b worth share swap

The Kandy Hotels Company (1983) PLC (KHC) is to acquire the balance 83.89% stake in United Hotels Company Ltd. (UHC) via a private placement worth Rs. 3.8 billion and make the latter, a fully-owned subsidiary, a move primed to bring multiple benefits.

KHC at present owns 16.11% in UHC and KHC’s parent Ceylon Hotels Corporation PLC owns 67.51% in UHC. The 83.89% stake amounts to 176.8 million shares and the transaction will be in the form of a share swap resulting in a private placement as per the listing rules of the Colombo Stock Exchange.

Based on independent valuation obtained by BDO Consulting Ltd., the private placement will be at Rs. 14.96 per share.

The share swap proposed will be on the basis of 1 KHC share to 0.9813 shares of UHC.

KHC listed the following benefits to existing shareholders following the transaction. 

1. With the acquisition of the diversified hotel portfolio of UHC (and its subsidiaries) consisting of the Ekho Surf Hotel Bentota, Ekho Safari Hotel Tissamaharama, The Lake Hotel and the iconic Lake House in Polonnaruwa, KHC will enhance its tourism footprint across key tourist locations, which can cater to a wide variety of clientele

2. Provide the opportunity of a higher earnings base from the combined properties

3. Facilitate access to the significant cash reserves of UHC Group, which are primarily derived from the disposal of the investment in the Maldives as per market announcements made previously by the Parent Company (CHC PLC) that would be available for future investment purposes and or to strengthen the combined balance sheet

4. Create economies of scale and greater synergies by combining common resources, including access to the significant cash pool for future development of the properties

5. Create a much larger and a stronger balance sheet with a combined post restructure Net Asset Value of over Rs. 11 billion, based on the independent valuation report of BDO Consulting Ltd.

6. Streamline the Group structure and make its market attractive by bringing together the key hotel properties of CHC PLC Group under a single umbrella within KHC, post-acquisition

7. Provide an opportunity for KHC to seek an upward re-rating of the valuations of KHC

The parties to whom the shares are to be allowed are Ceylon Hotels Corporation PLC; Ceylon Hotels Investment Ltd.; Ceylon Hotel Holdings Ltd., and the Estate of the Late Don Simon Gunasekara.

The total consideration for the transaction to major UHC shareholders will be settled as follows.

Ceylon Hotels Corporation PLC (Parent Entity) which holds 201.13 million shares in UHC worth Rs. 3.06 billion will be settled on the basis a) Rs. 1,164,835,5491 shall be set off by KHC for the amount payable by Ceylon Hotels Corporation PLC to KHC. The number of shares of KHC calculated at a per share value of Rs. 14.961- attributable to this sum of Rs. 1,164,835,5491 is 77,863,339.

However, such shares will not be issued to Ceylon Hotels Corporation PLC, as Rs. 1,164,835,5491 is set off against payables due from Ceylon Hotels Corporation PLC to KHC. b) 127,093,724 ordinary voting shares of KHC shall be issued to Ceylon Hotels Corporation PLC for the balance consideration of Rs. 1,901,322,111 calculated at a per share value of Rs. 14.96.

Ceylon Hotels Investment Ltd. (Affiliate Company) which holds 48.78 million shares worth Rs. 743.7 million will be settled by way of issuance of 49,715,471 ordinary voting shares of KHC to Ceylon Hotels Investment Ltd., calculated at a per share value of Rs. 14.96.

KHC also said the management plans to take necessary steps to increase the public float which will be below 20% post swap within the stipulated time frame.

The issue of shares under the share swap resulting in a private placement is subject to the Colombo Stock Exchange (CSIC) approving in principle the issue and listing of shares, as required and obtaining shareholder approval at an Extraordinary General Meeting of KHC, and is also subject to obtaining a waiver from the Securities and Exchange Commission of Sri Lanka (SEC) under Rule 5.4 (b) of the Listing Rules of the CSE.