June, 26, 2014
This story appears in the July 21, 2014 issue of Forbes Asia.
In the heart of Colombo, next to a lake, John Keells Holdings, Sri Lanka’s largest listed conglomerate, has giant excavators preparing the foundation for its new resort, the biggest in the country.
The $820 million project–the largest investment by a domestic company here–includes an 800-room luxury hotel, conference venues, a shopping mall, residential apartments, an office complex and the special attraction for Asia’s offshore tourist trade: a casino.
Since the end in 2009 of a 26-year civil war that gripped much of the attention on Sri Lanka, foreigners are rediscovering the island nation’s swaying palm trees, stunning views of the Indian Ocean and spicy food.
Tourist arrivals grew more than 20% a year from 2009 to 2012, versus 5% from 2004 to 2008, says Acuity Stockbrokers in Colombo. Last year was another banner increase–tourist arrivals hit 1.3 million in the year ending in March, with Chinese visits especially picking up. India remains the largest source.
John Keells is targeting the newly affluent in those two countries. (As it happens, when the UN Human Rights Council in March opted to investigate allegations of war crimes in Sri Lanka–a particular vexation for the government that triumphed over Tamil separatists–China voted against the resolution while India abstained.) But an aspect of the plan, as with many things in these parts, stirs political division.
Sri Lanka’s largest company, John Keells was set up by two Englishmen in the 1870s as a brokerage. Today it also makes food and beverages, runs supermarkets and hotels, and has investments in banks and ports. In a business sector typified by family-controlled entities, it is held 56% by foreign institutional investors.
“Soon after the war ended we decided that Sri Lanka was the place to be,” said Susantha Ratnayake, 55, the group chairman, in an interview at the company headquarters attached to the sprawling Cinnamon Lakeside Hotel, one of its two five-stars in the capital. On another side of this lake–which still goes by its Dutch name, Beira–is where Keells’ resort is under construction.
Group revenues have doubled since 2009 to $675 million in 2013, while net profits similarly rose to $107 million in the same period. The company has made appearances on FORBES ASIA’s Best Under A Billion honor roll.
Noting that more Indians were traveling to places like Singapore, Malaysia and Macau, where they were the source of “considerable” gross gaming revenue, Keells executives decided that postwar a new regional tourism strategy was in order.
“Why shouldn’t we get some of that traffic and those dollars,” says Ratnayake. “We thought about what has kept the Indians back so far. [The answer was that] you need high-end shopping and entertainment. We also knew that if we enter any new business, it has to have scale.”
“To quote [American mogul and chairman of Las Vegas Sands] Sheldon Adelson, just build it [a casino] and people will come,” says Ratnayake.
Sri Lankan officials want to double the foreign tourist count to 2.5 million by 2016. To attract development, they’re offering ten-year tax breaks on income generated from visitors apart from gambling. Meantime, they’ve designated a street along Lake Beira for new casinos–like a mini Las Vegas.
John Keells will get competition from Dhammika Perera, one of the richest men in the country, and Australian billionaire James Packer, both of whom also have gambling resorts in the works in the government-designated strip. (The Keells layout, which sits on land it has owned for several years, is nearly a mile away but received special permission.)
Perera’s project, the Queensbury Integrated Resort & Casino, includes a 500-room hotel, a mini convention center and its own shopping mall. Packer’s entry, in tandem with Sri Lankan promoter Ravi Wijeratne, is priced at $400 million and is said to be emphasizing celebrity chefs. (The Aussie also has casinos in Macau, London and Perth.)
The big dreamers in this field must split the existing five gambling licenses in Sri Lanka, now used in lesser joints and held by–wouldn’t you know it–Perera (three) and Wijeratne (two). So John Keells is in talks to bring in an international gambling operator to then acquire a license from either of the two men.
Though the government will keep the license cap in force, these new developments are not without their share of controversy.
In April as approval neared for enabling legislation, Buddhist religious leaders and hundreds in the political opposition marched in Colombo to protest, saying major casinos would spread prostitution and degrade the country’s morals. The Packer project, which reportedly is especially rich in tax breaks, drew special ire.
Meantime, a half-mile from these gambling resorts international hotel operators like Shangri-La, Hyatt and India’s ITC are building on land that until recently housed military units. With relative peace–the country still suffers outbreaks of ethnic strife–the soldiers have moved out from the ocean-facing strip and the deluxe accommodations are going in.
The whole push, says John Keells vice chairman Ajit Gunewardene, 56, is necessary to put Colombo on the luxury tourist map, 30 years after its last face-lift and now with an ?expanded world of jet-setters.
“When you get $40 a day and have 50% occupancy, all you do is survive,” he says. “There was no way that you could go sell to a new market because of the conflict.”
He adds, “We need the brands. It’s about creating the new Colombo and the new Sri Lanka.?… They’re bringing us into the 21st century. We were languishing, almost, in the preindependence era.”