jkh circular 2

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JOHN KEELLS HOLDINGS PLC(Company Registration No. PQ 14)

130 Glennie Street, Colombo 02

CIRCULAR TO SHAREHOLDERS

INVESTMENT BY JOHN KEELLS HOLDINGS PLC IN THE

WATERFRONT DEVELOPMENT PROJECT ATJUSTICE AKBAR MAWATHA AND GLENNIE STREET, COLOMBO 2, BORDERING BEIRA LAKE

IF YOU REQUIRE CLARIFICATIONS AS TO THE ACTION YOU SHOULD TAKE YOU SHOULD CONSULT YOUR

INVESTMENT ADVISOR, STOCK BROKER OR OTHER PROFESSIONAL ADVISOR


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ContentsLetter to Shareholders .......................................................... .............................. 2

1. Inormation relating to the Project .......................................................... 3

1.1. Overview o the Project ................................................................. ........ 3

1.2. The investment vehicle and its shareholders ........................................... 5

1.3. The integrated resort concept ........................................................ ........ 5

1.4. Demand drivers ................................................................. ................... 6

1.5. Concessions/Approvals ................................................................. ........ 7

1.6. Financial easibility ............................................................. ................... 8

1.7. Project unding ....................................................... .............................. 8

Annex 1 ....................................................... .................................................... 9

NOTICE OF MEETING ............................................................ ............................ 12

PROXY FORM ........................................................... ....................................... 13


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JOHN KEELLS HOLDINGS PLC | CIRCULAR TO SHAREHOLDERS

Letter to Shareholders

26 July 2013

Dear Shareholder,

INVESTMENT BY JOHN KEELLS HOLDINGS PLC IN THE WATERFRONT DEVELOPMENT PROJECT AT

JUSTICE AKBAR MAWATHA AND GLENNIE STREET, COLOMBO 2, BORDERING BEIRA LAKE

We write urther to the announcement made on 26 July 2013 convening an Extraordinary General Meeting or approving the

aoresaid investment as a Major Transaction.

As per our announcement dated 10 July 2013 John Keells Holdings PLC (JKH) communicated that:

IthasproposedtotheGovernmentofSriLankaaproject,valuedinexcessofUSD650Million,involvingthedeveloping,

owning, managing, operating, selling, leasing and renting a luxury multi/mixed use Integrated Resort (the Project) in the

land owned and occupied by its subsidiaries Ceylon Cold Stores PLC (CCS), John Keells PLC (JKL), John Keells Properties

(Private) Limited (JKP) and Waterront Properties (Private) Limited (Project Company) in Colombo 2.

JohnKeellsHoldingsPLCtogetherwithitssubsidiariesCCS,JKLandJKPwillbemajorityshareholdersintheProject

Company.

YourBoardofDirectorshasapprovedtheProject,inprinciple,subjecttoShareholderapproval(includingapprovalasaMajorTransaction). The Project Company will enter into an agreement with the Board o Investment o Sri Lanka to acilitate the

requisite approvals which are at an advanced stage including the approval as a Strategic Development Project.

UponreceiptofrequisiteapprovalstothesatisfactionofyourBoardofDirectors,furtherannouncementswillbemade.

The anticipated investment in the Project by JKH is greater than hal the value o the assets o JKH as at 30 June 2013 and

thereore constitutes a Major Transaction as per section 185 o the Companies Act No 7 o 2007.

Your Board o Directors recommends the investment by John Keells Holdings PLC in the Project based on the rationale outlined

herein.

To the best o the Directors knowledge and belie, all risk actors which are material to Shareholders in making an inormed

decision on the proposed investment have been considered and action taken, and planned, to mitigate the risks insoar as such is

commercially easible.

In the aoresaid, Shareholder consent is sought by way o a SPECIAL RESOLUTION or the investment by John Keells Holdings

PLC in Waterront Properties (Private) Limited as a MAJOR TRANSACTION in terms o section 185 o the Companies Act No 7

o 2007, as a urther step towards obtaining all approvals, statutory and otherwise, to commence the Project in terms o the

annexed Notice convening the Extraordinary General Meeting.


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1. Inormation relating to the Project

1.1. Overview o the Project

Project description and objective

TheProjectisanintegratedresortconsistingofmultiplebusinessesincludingaluxuryhotel,conventioncentre,

entertainment and gaming acilities, international standard shopping mall, luxury condominiums, serviced

apartments and oce space similar to the integrated resort developments seen in the South East Asian region. It is

a tourism related Project targeted towards the creation o a large and unique development, which will aesthetically

and unctionally add to transorming the landscape o Colombo, potentially making it one o the most sought ater

destinations in South Asia and will urther complement the businesses o the main industry groups o the John

Keells Group.

TheProjectisforthedevelopment,construction,equipping,commissioning,owning,managing,operating,selling,

leasing, and renting a luxury multi/mixed use iconic integrated resort and to carry on all related business activities

associated therewith including but not limited to the managing, leasing/renting, selling and operating the aoresaid

luxury hotel, convention centre, entertainment and gaming acilities, international standard shopping mall, luxury

condominiums, serviced apartments and oce space.

TheProjectwillcatertomultipleemergingdemanddriversincludingthegrowingmobilityandspendingpowerof

outbound South Asian regional travellers, the increase in global connectivity to Sri Lanka and the accompanying

growth in Sri Lankas tourism sector and the growing demand or entertainment/gaming and retail rom the Middle

East, India and East Asia.

TheProjectisenvisagedtocreateamultipliereffectintheeconomy,spurringgrowthinindustriesrangingfrom

leisure, entertainment, ood and beverage, consumer durables, travel and nancial services among others, as

witnessed in similar developments in the region.

Project features

This development is designed by Balmond Studio Limited, a design rm ounded by Sri Lankan born Cecil Balmond, one

o the worlds most infuential designers. Mr. Balmond currently holds the Paul Philippe Cret chair at Penn Design as

Proessor o Architecture at University o Pennsylvania USA and was the Deputy Chairman o Arup UK, one o the worlds

leading engineering consulting rms. Under Mr. Balmonds artistic direction, Arup has designed some o the worlds most

amous structures including the CCTV tower in China with Rem Koolhaas. He has also been the creative orce behindLondons high prole Serpentine Pavilion. One o Mr. Balmonds most recent projects is the Arcelor Mittal Orbit a 120m

high sculpture designed with Anish Kapoor or the 2012 Olympics in London.

The Project is expected to be completed over a period o ve (5) years or eight (8) years depending on the timing o

Phase 2, i undertaken. It should be noted that the Project Company has the fexibility to undertake the Project in two

phases, with Phase 2 being undertaken subject to, and based on, prevalent market conditions.


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Phase 1

Luxury hotelThe Project will eature a ve-star luxury hotel with approximately 800 rooms with the attendant acilities.

Convention centre

The convention centre will be built to cater to approximately 2,500 guests at a given time.

Shopping mall

The shopping mall will comprise approximately 400,000 square eet o built-up area.

Entertainment and gaming acilities

The entertainment and gaming acilities will span approximately 150,000 square eet and will be situated with

access to both the hotel and retail acilities.

Luxury condominiums (Residential tower 1)

The Project will have a residential tower which will house approximately 240 luxury condominiums.

Car park acility

The car park acility will eature approximately 2,500 slots.

Phase 2

Serviced apartments or condominiums (Residential tower 2)

This tower will house approximately 200 serviced or residential apartment units.

Ofce complex

The Project will have an oce tower within the property with a built up area o approximately 400,000 square eet.

The Project will consist o a total built up area o approximately 4,500,000 square eet.

Please note that the confguration stated herein is based on the current design envisaged or the Project and may be

adjusted within the overall parameters o an integrated resort.


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1.2. The investment vehicle and its shareholders

WaterfrontProperties(Private)Limited,theProjectCompany,asubsidiaryofJKH,hasbeenincorporatedto

undertake the development o the Project.

TheProjectentailsthedevelopmentofthelandsownedandoccupiedbyCCS,JKL,JKPandtheProjectCompany

at Colombo 2, all subsidiary companies o JKH; CCS, JKL and JKP will receive shares in the Project Company in

consideration or the lands transerred to the Project Company.

ThecombinationofthelandownedbyCCS,JKL,JKPandtheProjectCompany,allsubsidiarycompaniesofJKH,

and land, previously occupied by subsidiaries o JKH on long term leases and Annual Permits, to be leased rom

the Board o Investment o Sri Lanka or a period o 99 years, creates a plot area large enough to undertake an

integrated resort o the scale envisaged.

ThescaleoftheProjectallowstheattractionofconcessionsandbenetsasaffordedundertheStrategic

Development Projects Act (detailed in 1.5 herein). Such benets have a positive impact on the Project nancials

as a result o a reduction in the capital expenditure and the tax benets on operational cash fows which positively

impact the cash fows to equity owners on a sustainable basis.

BasedonestimatedProjectcostsandtheenvisagedcapitalstructure,JKHwillownapproximately79.24%*ofthe

ProjectCompany.WithCCS,JKLandJKPowningapproximately14.15%*,5.03%*and1.57%*respectively,JKH

willhaveeffectivecontrolof96.70%*.

* Can vary based on actual exchange rates

1.3. The integrated resort concept

Theconceptofanintegratedresortisapropertydevelopmentofferingamixedproductportfoliowhichincludesa

luxury hotel, convention centre, entertainment and gaming acilities, international standard shopping mall, luxury

condominiums, serviced apartments and oce space.

Thisformatenablescustomerstoaccessanarrayofproductsandserviceswithminimaleffort.

TheconcepthasgainedimmensepopularityintheAsia-Pacicregionduringthepastdecadeasevidenced

particularly in Singapore, Macau and the Philippines.

Thecompositeofferingofaluxuryhotel,entertainmentandgamingfacilitiesandinternationalstandardshopping

mall through a single destination has appealed to many regional and western tourists, and the region has seen an

increased number o tourist arrivals as a result.


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1.4. Demand drivers

Sri Lankas macro level conditions SriLankastourismindustryremainedstagnantduringthe30-yearconictperiodwithtouristarrivalsbeingbound

within a narrow range. However, during this period, tourism within the region grew at a rapid pace, demonstrating

the potential that Sri Lanka can exploit in its tourism industry.

Table: International Tourist Arrivals in Millions

Country Year 2012

Malaysia 25.0

Thailand 22.3

Indonesia 8.0

Vietnam 6.8

Cambodia 3.6

Sri Lanka 1.0

Source: UNWTO

SriLankaseconomy,intermsofgrossdomesticproduct(GDP),grewby8.0%,8.3%and6.4%in2010,2011and

2012respectively.ThelatestCentralBankofSriLankatargetforgrowthin2013isestimatedtobe7.5%whilethe

AsianDevelopmentBankhasforecastedagrowthof6.8%.

Leveraging on the strategic location of Sri Lanka Onthetourismfront,keysourcemarketssuchasIndia,theMiddleEastandEastAsiaarepoisedtogenerate

signicant trac to the country on the back o the relatively short fight durations to access the destination via key

airports.

TheColombo-KatunayakeexpresswaywhichisscheduledtobeinoperationbySeptember2013wouldreduce

travel time rom the countrys main international airport to Colombo to approximately 20 minutes.

ArrangementstoincreasethecurrentpassengerhandlingcapacityattheBandaranaikeInternationalAirportwould

enable better travel fow to and rom Sri Lanka.

SriLankaoutperformsregionalpeersinsocialandeconomicbenchmarks,andwithitslocation,ispoisedtobecome

a viable hub or tourism, particularly entertainment and gaming activities similar to other established regional

destinations such as Macau, Singapore and Philippines.

Proximity to key markets in the sub-continent and SAARC region

SriLankaissituatedamidstahighpopulationdensityregionwhichincludesIndia,Bangladesh,Pakistanand

Maldives; the region collectively generates material outbound tourist volumes in the high spending tourist brackets.

India,currentlythe10thlargesteconomyintheworldandgearinguptoreachUSD2TrillioninGDPbytheendof

2013, creates great potential or Sri Lanka to strengthen its retail, leisure and tourism industry.


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Fortherstninemonthsof2012,670,000IndiantouriststravelledtoSingaporewhileMalaysiareceived691,000

Indian tourists or the ull year.

Indiantouristswerethe5thand6thlargestcontributorstoSingaporesandMalaysiastouristarrivalsrespectively.

ThemixedofferingoftheProjectisviewedasacatalyst,andauniquesellingpoint,inattractingashareofthe

Indian outbound travel market.

IndiantouristswouldndtheoptionoftravellingtoSriLankamoreconvenientasopposedtotravellingtoEastAsian

destinations to experience competing oerings.

1.5. Concessions/Approvals

Strategic Development Projects Act Havingconsideredthemagnitude,thestrategicimportanceofthisProjecttothecountry,theBoardofInvestments

o Sri Lanka (BOI) has identied the Project as a Strategic Development Project under the Strategic Development

Projects Act 14 o 2008 (Amended) and an agreement has been entered into between the Project Company and the

BOI in this regard.

AspertheGazettepublishedon18July2013(Appendedhereininannex1)under,andintermsof,theStrategic

Development Projects Act, subject to other approvals in terms o the said Act, the Project is to receive, inter alia,

exemptions rom:

a. The provisions o the Inland Revenue Act No. 10 o 2006 relating to the imposition o income tax on the Project

Company on the prot and income generated rom the non-gaming activities o the Integrated Resort or a

period o ten (10) years.

i. The said Tax Exemption Period to commence rom the rst year in which the Project Company makes

taxable prot or three (03) years ater commencement o commercial operations, whichever alls rst.

ii. Ater the expiration o the aoresaid Tax Exemption Period reerred to above, the prots and income o the

ProjectCompanyshallbechargedattherateofthelowerofsixpercentum(6%)orftypercentum(50%)

o the prevailing tax rate or the hotel industry, or a period o teen (15) years immediately succeeding the

last date o the Tax Exemption Period.

b. Income tax on dividends distributed to the shareholders out o the exempted prot during the said Tax

Exemption Period and one year thereater.

c. Withholding Tax, on interest paid on oreign loans and debt obtained or capital expenditure and on technical

ees.

d. Value Added Tax (VAT) on the importation o project related goods and services and the local purchases

o project related goods and services, PAYE tax or oreign employees; Customs Duty and Port and Airport

Development Levy on project related items and Construction Industry Guarantee Fund Levy.

Other approvals

The Project Company is currently at an advanced stage o negotiation with relevant statutory and other authorities to

obtain other approvals.


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1.6. Financial easibility

TheassumptionsandnancialprojectionsarebasedontheknowledgeandpriorexperienceofJKHincityhotels,

banqueting, retail malls and residential apartments and validated with international benchmarks.

ThetotalcostofthePhase1and2willamounttoapproximatelyUSD820MillionandwithimplementationofPhase

2 being subject to market conditions. It is envisaged that the minimum investment in Phase 1 will be USD650

Million.

BasedontheProjectassumptions,theBoardofDirectorsexpectstheforecastedreturnsinUSdollartermstobe

value accretive to the Project Company and to a JKH Shareholder.

TheexibilityincorporatedinthecongurationoftheProjectaswellastheoptionsavailableinthenancial

structuring o the Project provide an opportunity to de-risk exposure in the event o a change in the macro

environment.

1.7. Project unding

TheProjectwillbenancedthroughacombinationofequityforlandtransferredfromgroupsubsidiaries(CCS,JKL

and JKP), equity inusions into the Project Company, pre-sales o residential apartments during the construction

phase, and debt at the Project Company.

JKHwillfunditsequityrequirementfortheProjectthroughexistingcashreservesandacombinationofdebtand

equity, as appropriate, over the period o the Project so as to ensure an optimum investment by JKH in the Project

Company. I appropriate, and at the relevant time, JKH may seek an inusion o capital to JKH.

TheinitialinvestmentintheProjectCompanywillcompriselandofapproximatelyUSD60Million,equityinfusionrom JKH o approximately USD240 Million and debt or the balance at Project Company. At peak unding, the

Project will have a debt-equity ratio o approximately 60:40.

ProjectCompanyhasmandatedaleadingforeignnancialinstitutiontostructureandraisetherequireddebt

nancing requirements or the Project and signicant progress has been achieved in this regard.

Upon receipt o Shareholder consent as aoresaid or the investment by JKH in the Project Company and obtaining o all

other necessary approvals and or execution o contracts necessary to undertake the Project by the Project Company to

the satisaction o the Board, your Board o Directors intends to make the requisite investments in the Project Company.

The requisite resolution to give eect to the above is set out in the attached notice convening an Extraordinary General

Meeting (EGM) to be held or that purpose on 23 August 2013.

By Order o the Board

JOHN KEELLS HOLDINGS PLC

Keells Consultants (Private) Limited

Secretaries


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Annex 1


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End o Annex 1


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NOTICE OF MEETING

Notice is hereby given that an Extraordinary General Meeting o John Keells Holdings PLC will be held on 23 August 2013 at

10.00 a.m. at The Auditorium, the Institute o Chartered Accountants o Sri Lanka, 30A, Malalasekera Mawatha (Longdon Place),

Colombo 7, to consider and i thought t, to pass the ollowing as a Special Resolution:

SPECIAL RESOLUTION MAJOR TRANSACTION

IT IS HEREBY RESOLVED THAT

The ollowing transaction which constitutes a Major Transaction in terms o Section 185 o the Companies Act No. 7 o 2007 be

and is hereby approved and the Directors be authorised to:

a. Invest in the Project, being a project or the development, construction, equipping, commissioning, owning, managing,

operating, selling, leasing and renting a luxury multi/mixed use iconic integrated resort consisting o multiple businesses

including a luxury hotel, convention centre, entertainment and gaming acilities, international standard shopping mall, luxury

condominiums, serviced apartments and oce space and at an estimated Project cost o United States Dollars Eight Hundred

and Twenty Million (USD820 Million) through Waterront Properties (Private) Limited (PV 82153) (the Project Company), a

special purpose vehicle incorporated or this purpose.

b. Inuse the required unds or John Keells Holdings PLCs equity subscription in the Project Company through existing cash

reserves and a combination o debt and equity, as appropriate, over the duration o the Project, subject to such approvals as

may be necessary in law; and

c. To take such urther and other action as the Board o Directors shall deem appropriate and necessary or the commencement

and execution o the Project including raising debt, borrowing, mortgaging or hypothecating property, guaranteeing or

indemniying the perormance o obligations by the Project Company.

By Order o the Board

JOHN KEELLS HOLDINGS PLC

Keells Consultants (Private) Limited

Secretaries

26 July 2013

Notes:

i. A member unable to attend is entitled to appoint a Proxy to attend and vote in his/her place.

ii. A Proxy need not be a member o the Company.

iii. A member wishing to vote by Proxy at the Meeting may use the Proxy Form enclosed.

iv. In order to be valid, the completed Proxy Form must be lodged at the Registered Oce o the Company not less than 48

hours beore the meeting.


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PROXY FORM

I/We ......

...... o

.. being a member/s o John Keells Holdings PLC hereby ppoint

..... o

...

or ailing him/her

MR. SUSANTHA CHAMINDA RATNAYAKE or ailing him

MR. AJIT DAMON GUNEWARDENE or ailing him

MR. JAMES RONNIE FELITUS PEIRIS or ailing him

MR. EMMANUEL FRANKLYN GAMINI AMERASINGHE or ailing him

MR. TARUN DAS or ailing him

MRS. SITHIE SUBAHNIYA TIRUCHELVAM or ailing her

DR. INDRAJITH COOMARASWAMY or ailing him

MR. ANTHONY RANJIT GUNASEKARA or ailing him

MR. MOHAMED ASHROFF OMAR o Colombo

as my/our proxy to represent me/us and vote on my/our behal at the Extraordinary General Meeting o the Company to be held

on 23 August 2013 at 10.00 a.m. at The Auditorium, the Institute o Chartered Accountants o Sri Lanka, 30A, Malalasekera

Mawatha (Longdon Place), Colombo 7, and at any adjournment thereo, and at every poll which may be taken in consequence

thereo.

I/We, the undersigned, hereby direct my/our proxy to vote or me/us and on my/our behal on the specied Resolution as

indicated by the letter X in the appropriate cage:

FOR AGAINST

SPECIAL RESOLUTION - MAJOR TRANSACTION

Signed on this day o Two Thousand and Thirteen.

.

Signature/s o Shareholder/s

NOTE: INSTRUCTIONS AS TO COMPLETION OF PROXY FORM ARE NOTED ON THE REVERSE.


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INSTRUCTIONS AS TO COMPLETION OF PROXY

1. Please perect the Form o Proxy by lling in legibly your ull name and address, signing in the space provided and lling inthe date o signature.

2. The completed Form o Proxy should be deposited at the Registered Oce o the Company at No. 130, Glennie Street,

Colombo 2, not later than 48 hours beore the time appointed or the holding o the Meeting.

3. I the Form o Proxy is signed by an Attorney, the relevant Power o Attorney should accompany the completed Form o Proxy

or registration, i such Power o Attorney has not already been registered with the Company.

4. I the appointer is a company or Corporation, the Form o Proxy should be executed under its Common Seal or by a duly

authorised ocer o the company or Corporation in accordance with its Articles o Association or Constitution.

5. I this Form o Proxy is returned without any indication o how the person appointed as Proxy shall vote, then the Proxy shall

exercise his/her discretion as to how he/she votes or, whether or not he/she abstains rom voting.

Please fll in the ollowing details:

Name :

Address :

.

.

Jointly with :

Share Folio No. :


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jkh circular 2

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