Laugfs bets on group restructuring to return to profitability

From left: Capital Alliance Partners Ltd Global Markets and Investment Banking Managing Director Deshan Pushparajah, Laugfs Gas PLC Managing Director Thilak De Silva, Laugfs Gas PLC Chairman W.K.H. Wegapitiya and Laugfs Gas PLC Director H.A. Ariyaratne
Pic by Nisal Baduge

By Chandeepa Wettasinghe
Laugfs Gas PLC is planning to return to the black within one financial year, following its corporate restructuring process, which would happen over the next three months, edged along by the new liquefied petroleum gas (LPG) terminal in Hambantota. 
“A lot of new things will happen after the restructuring; new things will happen after the terminal is commissioned. We will be back in the black after one year,” said Laugfs Gas PLC Chairman 
W.K.H. Wegapitiya. 
The restructuring will see Laugfs’ core businesses, which include energy, transport and logistics and the holding company for the Laugfs head office remains with the parent Laugfs Gas PLC. The leisure, solar power and emissions testing businesses will be segregated from the parent and listed on the Colombo Stock Exchange within the next three months, subject to the 
required approvals. 
Wegapitiya said the reason for the restructure is to gain the best valuation for each of the Laugfs segments and in order to attract partners and investors for each segment more easily.
“In the past, when an energy company came for discussions, they weren’t interested in power or leisure. Power companies didn’t want to get involved in a group which had energy. So we couldn’t provide the best returns for our shareholders,” he added. 
Capital Alliance Partners Ltd Global Markets and Investment Banking Managing Director Deshan Pushparajah said that this was the main reason for Laugfs shares not reflecting the group’s value. 

“Investors like clarity of purpose. I think that’s the main reason why the share is not reflecting its value,” he said. 
However, Wegapitiya admitted that Laugfs’ high leverage also is reflected in the low share price.
During the nine months in the current financial year, Laugfs’ borrowings increased to Rs.23.23 billion from Rs.16.75 billion, owing partly to the construction of the new LPG terminal 
in Hambantota.
The balance sheet, worth Rs.38.5 billion, had only Rs.6.8 billion in total equity, reflecting the high leverage level.
Laugfs shares closed trading on Tuesday at Rs.31.40 per share. It had a Rs.17.64 net asset per share at end-December 2017, while for the nine-month period so far, it has posted a loss per share of Rs.2.43 after recording a loss per share of Rs.1.65 in the 2017 financial year.
Losses for the first nine months of the 2018 financial year amounted to Rs.942.2 million compared to a Rs.120.3 million profit in the corresponding period, last year. Laugfs inched further into the red in the current financial year after posting Rs.627.3 million net loss in 2017 following a Rs.1.3 billion net 
profit in 2016.
Meanwhile, Wegapitiya said that the US $ 80 million LPG terminal in Hambantota, which is 80 percent complete, has resumed construction smoothly following a misunderstanding with the Chinese company, which took over the operation of the port three months ago and that the terminal, one of the largest in South Asia, would open in April or May.
The terminal operations are expected to ease the group profit and loss and balance sheet positions, according to Wegapitiya, who said that peripheral investments and activities are also planned after the terminal is opened.
“Currently, we have three ships for LPG transport and after the commission of the terminal, we will need 10 ships. Either our own or chartered,” he said.
The planned US $ 100 million expansion of LPG operations in Bangladesh and the setting up of Laugfs operations in Myanmar are going according to plan, according to Wegapitiya, who said that other expansion plans will also be implemented in other regional countries, following the restructuring, although it is too early to divulge these intentions.
The government is also planning to introduce a unified pricing formula for LPG over the next two to three months, which would lift up Laugfs’ profitability, according to Wegapitiya.
Laugfs enjoys a duopoly in the domestic LPG market, with the only other player being the state and is expecting the Bangladesh operations to overshadow the set up in Sri Lanka in the future.