US-based Janus buys JKH stake

The Colombo Stock Exchange had another eventful weekend with turnover and indices on purchases as well as corporate activity. The indices closed the week higher mainly on high retail activity driving up mid cap stocks. The ASI, which tracks the movements of all the stocks in the market, closed up 49 points or 1.4 percent to end the week at 3,563. The MPI, which tracks the movements of the 25 most liquid stocks, closed up by 60 points (1.5%) to end the week at 4,099.
The hotels and travels sector saw renewed interest with the sector gaining 8% for the week while the Construction and Engineering sector gained 4% for the week. The latter sectors’ gain was totally due the price rise seen in sector constituent MTD Walkers, which closed up by Rs 150.25 for the week to end at Rs 279.25.
The largest gain was seen in the trading sector of by as much as 33% due to the impact of Environmental Resources and Investments (ERI) corporate actions. ERI announced a 1 for 2 rights issue at Rs 30.00 and also the issue of 2 warrants each of the following maturities at the given strike prices for every ordinary share held. Warrants excisable in 2012 at Rs 33.00, excisable in 2014 at Rs 36.00 and excisable in 2015 at Rs 39.00 for those who subscribe to the rights. The company also announced an issue of one each of the above three maturity of warrants in the ratio of 1 for every warrant excisable in 2010 and also excisable in 2011. This saw the share ride high up to Rs 132.00 but closed the week at Rs 119.25. The 2010 warrant reached a high of Rs 106.00 but closed at Rs 93.50, while the 2011 warrant reached a high of Rs 105.00 but closed at Rs 93.75. With this latest action, ERI’s market capitalization stands at Rs 17 billion based on the value of the shares alone. Add the value of the warrants in issue at this point and it’s another Rs 20 billion. At Rs 37 billion, the market capitalization of ERI is close to that of Ceylon Tobacco and its more than the market capitalization of Distilleries Company, John Keells Hotels, Asian Hotels and properties or Aitken Spence & Co. However, the company is yet to come out with a credible business plan, show a profit or demonstrate any competence in managing funds or business. As it has done in the past, the company made overnight millionaires of those who bought the shares or warrants early and pulled in a lot of late enthusiasts.
Turnover for the week was Rs. 6.1 billion with a daily average turnover of Rs 1.5 billion, whereas for the previous 5 day working week it was Rs 2.2 billion. This week too saw a net outflow of foreign investment funds with net sales of Rs 230 million. In the previous week, it was a net outflow of Rs 639 million. Foreign inflow in the week came to Rs 1 billion while sales was Rs 1.2 billion.
The other big story was that Janus Capital Management of the US has taken a stake amounting to 12.3% of the outstanding shares in John Keells Holdings. Some of the shares were previously owned by disgraced billionaire hedge fund manager Raj Rajaratnam, while many others were owned by various local and foreign parties. Janus Capital Management is a unit of Janus Capital Group based out of Denver Colarado and has over US$150 billion in management. The company also has offices in Europe and Asia. Janus Capital Management along with Bank One, Canary Capital Partners along with 6 other mutual and hedge fund managers were charged with what became known as the 2003 Mutaul Fund Scandal. JCM paid US$262 million in fines and undertook many operational reforms. Scandal aside, the Janus entry to the small and illiquid Colombo Stock Exchange is seen as a vote of confidence on the country.
At the end of the week, John Keells Holdings closed at Rs 179.00, down Rs 1.00, Aitken Spence & Co closed at Rs 1252.25, down Rs 23.00, Carson Cumberbatch & Co closed at Rs 540.00, down Rs 11.75, Ceylon Theatres closed at Rs 540.00, up 25 cents and Hayley’s closed at Rs 185.75, down Rs 2.25. Of the banks, Commercial Bank’s voting shares closed at Rs 193.00, down Rs 4.25, while its non-voting shares closed at Rs 126.50, down Rs 1.00. Hatton National Bank voting closed at Rs 175.25 (down 75 cents), while its non-voting shares closed at Rs 113.00, up Rs 2.00. NDB Bank closed down Rs 2.75 to Rs 207.00, while DFCC Bank closed down Rs 3.50 to Rs 167.50. Sampath Bank was down Rs 4.05 to end the week at RS 217.75, while Nations Trust Bank closed unchanged at Rs 38.00

Stock market correspondent