Fairfax converts Rs. 14.3 b worth debt into equity at JKH

Friday, 1 March 2024 00:00 -     - {{hitsCtrl.values.hits}}

  • Canadian financial services giant ups stake in JKH to 19.4% from 13%
  • 98.12 m debentures with a face value of Rs.12.76 b remain and eligible for conversion till 12 August 2025
  • In August 2022 JKH raised $ 75 m or Rs. 27 b from Fairfax via issuance of 208.12 million LKR-denominated debentures
  • Fairfax Financial Holdings Chairman and CEO Prem Watsa in June 2022 said its investment reaffirms confidence in the prospects of JKH and Sri Lanka

Fairfax Financial Holdings Chairman and CEO Prem Watsa
John Keells Holdings Chairperson Krishan Balendra

Canada-based financial services giant Fairfax has increased its stake in premier blue chip John Keells Holdings (JKH) to 19.4% from 13% previously.

This was following Fairfax exercising its option to convert 110,000,000 debentures, with a face value of Rs. 14.30 billion.

In August 2022, JKH issued 208,125,000 LKR denominated debentures, with a face value of Rs. 27.06 billion, to HWIC Asia Fund (HWIC), a subsidiary of Fairfax Financial Holdings Ltd.

The debentures were then issued at Rs.130 per debentures and with the option for conversion to shares at a ratio of 1:1, based on the approval granted by the shareholders at the time.

JKH announced yesterday that HWIC exercised its option to convert 110,000,000 debentures, with a face value of Rs. 14.30 billion. JKH has issued and listed 110,000,000 new ordinary shares of the Company. Post this conversion, HWIC has a shareholding of 19.4% of the Company.

The remaining outstanding debentures post this conversion amount to 98,125,000 debentures with a face value of Rs. 12.76 billion. The remaining debentures are eligible for conversion till 12 August 2025.

The dilution from this issuance is 7.34%, based on the number of ordinary shares outstanding

as at the date of this announcement. If and when the entire option is exercised the dilution would be 13.06%. The debentures will accrue interest at a nominal interest rate of 3% per annum.

In proposing the $ 75 million issue back in June 2022, JKH said the proceeds will be used to support the Company’s investment and financing obligations, particularly in terms of managing the foreign currency linked funding requirements in investments such the West Container Terminal in the Port of Colombo and will significantly strengthen the financial position of the Group during these volatile times.

Fairfax Financial Holdings Chairman and CEO Prem Watsa said: “By making this investment, Fairfax reaffirms its confidence in the prospects of the John Keells Group and Sri Lanka. We have made substantial investments over the years in a number of businesses in Sri Lanka. Our largest investment is in JKH where we have the highest confidence in the management, the transparent governance practices of the Group and the growth prospects of the businesses.”

“I believe that Sri Lanka will continue to be resilient and overcome the current challenges, as it has done on numerous occasions, and the country will soon regain its tremendous potential. I am encouraged by the preliminary steps being taken to stabilise the economy towards a more sustainable path of growth. Fairfax will look for more opportunities to invest in Sri Lanka and play a part in its economic transformation,” added Watsa in June 2022.

Last month, HWIC Asia Fund, which originally held 8.6% stake acquired a related party holding of 4.5% or 61.9 million shares in JKH held via Citigroup Global Markets Ltd. Agency Trading Prop Securities at Rs. 183 per share. JKH share price closed yesterday at Rs. 185.75, down by 1.2% or Rs. 2.25.

Fairfax also owns 15% in JKH Group entity Nations Trust Bank and 80% stake in general insurer Fairfirst.

Founded by Prem Watsa, the Toronto, Canada based Fairfax is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and the associated investment management. Over the last 37 years, Fairfax has written cumulative premiums of $ 229 billion.