The Government had decided to accelerate the revival of stalled or under-performing and under-utilised State-owned ventures to realise the vision of President Gotabaya Rajapaksa to revamp State-owned entities to its fullest potential, profitable and high-performing units to compete with the private sector. Enhancing the value of Colombo city as a top tourist attraction and establish investor-confidence.
Accelerated initiatives are already taken with Cabinet approval to establish a new business model to revamp these State-owned entities through a fully government-owned holding company under the purview of the Finance Ministry.
Coinciding with the vision of President Rajapaksa, swift action was taken to form the holding company ‘Selendiva Investments Limited’ under the ownership of the Ministry of Finance and the Board of Directors being appointed by the Treasury.
President Rajapaksa appointed the former UDA Chairman and Urban development specialist Sirinimal Perera as Chairman of the Company and entrusted to spearhead the task.
Revamp
The initial step is to revamp underperforming State-owned entities in the hospitality business, Hotel Developers Lanka PLC (Owning company of Hilton Colombo), Canvill Holdings (Owning company of Grand Hyatt) and the heritage property Grand Oriental Hotel, the initial entities to be brought under the new holding company. Currently, the process has kicked off with a valuation of assets by the Chief Valuer of the Department of Valuation prior to the consolidation.
The Government initiated a new business model to consolidate these entities to the holding company on market-based asset valuation, then to carry out appropriate restructuring and infuse required equity capital to reach the maximum potential of development from raising funds by listing in the Colombo Stock Exchange.
Skilled professionals in multi-disciplines have been appointed to the Board of the Holding company by the Treasury Secretary, being the sole owner of the holding company, till the consolidation to give the required leadership to transform the entities to efficiently run profitable units of the holding company.
Shares in the holding company will be issued to shareholders of the consolidated entities pro rata to the shares held at the time of consolidation at the market value of the assets from valuation carried out by the Chief Valuer.
The stricture of shareholding will be: Treasury will own 100% shares of Hotel Developers, Bank of Ceylon (BoC) owns 98% of GOH, while Canwill Holdings Ltd., shareholders include Sri Lanka Insurance Corporation(SLIC), Litro Gas and the Employees Provident Fund (EPF).
New business model
The new business model is expected to bring effective and transparent governance to boost investor-confidence and the preference for Private Public Partnership (PPP) over privatisation of State-owned entities by the previous government. These entities failed to get off the ground, due to a lack of clarity and proper vision, coinciding with national values and public perception of management of valuable funds. The business model will retain State ownership of majority stake in the holding company and give the public the opportunity to own shares in state-owned entities.
The listing will eventually create good governance of public owned properties and accountability of investments made with the strict requirement of complying with CSE regulations and reporting. This aligns with the President’s vision to eliminate inefficiency and lack of accountability in State-owned entities.
Grand Hyatt construction
The iconic Grand Hyatt project was stalled for years without any development after 2015 but at staggering cost. Rs 22 billion has been incurred when only 53% of the work had been reported as completed. It is projected that it will cost another Rs 38 billion to complete this project based on the current designs, specifications and forecast.A mind boggling Rs 60 billion will be the ultimate cost at the end of the project. This excludes the additional cost of interest on nonpayment to contractors due to suspension of works understhe pretext of privatization of the property which never materialized. The cost of a similar project in today’s context of benchmark pricing is around Rs 45 billion at the maximum.
The move to commence work for Grand Hyatt construction is to partially complete a minimum of 200 rooms with all amenities (restaurents, Gym &Spa, ballroom, main kitchen and BOH services and presidential suite) covering 16 levels of the 47 levels in the first phase in the last quarter of 2021 and complete 258 rooms and service apartments by the lastt quarter of 2022. The total number of rooms will be 458 plus 100 service apartments covering 47 levels.
The Government has now decided to accelerate the completion of this stalled project at a fast pace but at a reduced investment through this holding company, Selendiva Investment Limited. Construction has recommenced with main civil contractor Maga Engineering being mobilized for the task. Plans are also under way to seek the possibility of reducing this investment and align with the market benchmark cost of similar hotel projects to Rs 45 billion at completion. The hotel operator Grand Hyatt corporation has already committed its fullest cooperation to restructure costs and to achieve a reasonable return on investment to the state and create a good market value for the shares in the CSE at the time of raising equity for the holding company.
Once the owning of company of Grand Hyatt is consolidated, the required financing for the completion of this project will be raised through CSE listing of shares of the holding company Selendiva Investment Limited.
The latter will also take the initiative to revamp the Heritage property Grand Oriental Hotel, keeping its heritage value intact to attract tourists. An expansion plan in stages with pedetrial development will be put in place to make this a top tourist attraction in the heart of the city.
The Government expects to transform this area to realise the President’s vision of being a top tourist attraction for leisure tourism which was never tapped to gain the true potential of its heritage value. It was neglected due to a lack of vision to enhance foreign exchange income from tourism. It is expected that the President’s vision will turn the heart of Colombo city to a new tourism niche, a boost for foreign exchange income and economic growth in the next five to 10 years. The Government also is of the view that City hotels will benefit and will encourage new international 5-star hotels to the city hotel market.
Selendiva Investment will also develop the Colombo Hilton with immediate focus on refurbishing 250 guest rooms out of the total 382 rooms at a nominal investment of US$ 10 million which will also include an authentic Chinese restaurant. This project is expected to complete in 3rd quarter of 2021. Project has already kicked off with procurements currently underway.
The refurbishment of rooms at Hilton was never initiated after the initial opening of the hotel in 1987. The Government has now decided to accelerate this project which will bring the much-expected value for the hotel and the shares at the time of listing and obtain the true potential of the Brand Image which was not forthcoming in the past due to far below standard guest rooms to compete with other international hotel chains.
A master plan is currently underway where Hotel Developers will develop 2.5 acres of land where the Hilton Sport Centre now stands into a mega project to make maximum utilisation of the prime asset and generate revenue.
Required equity capital
After raising the required equity capital through the listing in the CSE of the holding company shares to finance development plans, the business model will still maintain a government majority ownership and control of the holding company by retaining 51% shareholding. A true reflection of the PPP model, to make the maximum benefit of revamping and converting State-owned assets to profit- making units at its full potential, whilst creating the opportunity for the public to participate in the ownership of the company
Finally, the vision of President Rajapaksa is expected to be realised from this initiative. Government-owned assets will ultimately commence paying dividend on investment and the turn around to be a valuable revenue stream to the government, as opposed to the demand for regular intervention from the Treasury. In the past this ed to severe financial stress on the Government. The monies could now be diverted to productive development activities which can bring quantitative and qualitative benefits to the country.