Sri Lanka’s Laugfs Gas in talks with strategic investors in LPG, hotels

ECONOMYNEXT – Sri Lanka’s Laugfs Gas, which has diversified from a domestic cooking gas supplier to regional trader and hotels, is holding talks with strategic investors to bring investments into its energy and leisure businesses, chairman W.K.H. Wegapitiya said.

“We are talking to a few leading companies – foreign partners – who will add a lot of value into our businesses when they invest,” he told economynext.com in an interview.

Wegapitiya declined to identify the potential investors yet, saying Laugfs group has signed non-disclosure agreements with them while talks were going on.

The group’s restructuring spun off the hotels, power and emission testing businesses.

The revamp, which consolidated its core liquid petroleum gas (LPG), shipping and storage units into a pure play energy firm, was aimed at attracting foreign partners with specific knowledge of key sectors.

Some of the strategic partners who were keen on joining up in businesses like leisure had not been willing to come when they saw non-related units in the group.

Laugfs is aiming to be a regional LPG supplier, not only supplying its existing Bangladesh market but to use its position to be an Indian Ocean player, eying opportunities in south Asia and as far as east Africa, Wegapitiya said.

Existing operations include a procurement arm in Dubai, a fleet of three ships and storage and distribution of LPG in Sri Lanka and Bangladesh.

The group’s trading unit in Dubai is handling increasing volumes, the shipping arm is expanding its LPG product vessel fleet and the southern Hambantota port storage terminal commissioned in May will be a blending and supply hub.

Talks on getting strategic partners were temporarily delayed by April’s suicide bombings of churches and hotels by Islamist extremists which killed over 250 people and sharply reduced tourist arrivals and led to travel warnings against visiting the island.

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The potential strategic partners of Laugfs Gas had not withdrawn in the aftermath of the attacks, which presented Sri Lanka with renewed security concerns after the end of its 30-year ethnic war 10 years ago.

Representatives of foreign parties were supposed to visit the island for talks in April but the Easter Sunday bombings ruined that plan.

“It was only a few weeks ago that some of those countries where our potential partners are headquartered relaxed travel advisories,” Wegapitiya said. “Talks are going on and we are hopeful.

“Our operation now is mainly focusing on the local market but there is potential in the wider Indian Ocean market, in Asian and African countries.”

Laugfs projects its Hambantota 30,000 metric tonne LPG transhipment terminal will have annual exports of 500 million US dollars, receiving bulk shipments in big vessels and exporting on smaller ships as many regional ports cannot handle big ships.

Wegapitiya said the company expects a strategic partner into the business.

“The first phase of the storage terminal has enough capacity to operate for a couple of years. The strategic partner is coming in as an equity partner, as a minority strategic partner.”

Laugfs group has been making losses in recent quarters which it attributes mainly to rupee depreciation and LPG price controls. At end-2018 it had total assets of 34.4 billion rupees and 14.8 billion rupees debt.

In the March 2019 quarter, the net loss of Laugfs Gas shot up 379 percent to 473.4 million rupees from a year earlier, owing to finance costs and soaring foreign exchange losses.

The group has spoken of expanding in a big way its existing three-ship fleet of LPG ships under Laugfs Maritime.

 “Now we are looking at more ships. When the storage terminal is fully operational, we’ll need more ships, which we will either buy or charter,” Wegapitiya said.

Right now Laugfs has a ship trading LPG between Vietnam and China.

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LPG trading volumes by Dubai-based SLOGAL Energy DMCC are “growing slowly and gradually,” Wefapitiya said.

“Our Dubai operation is going to be one of the leading trading and supply chain companies in the Indian Ocean region. Our target for the 2019-20 financial year is to handle one million tonnes for our own and foreign markets.”

Apart from Bangladesh, Laugfs also sees big LPG market potential in Myanmar and Kenya.
(COLOMBO, 15 July, 2019)